[front cover]
J.P. MORGAN
TAX AWARE ENHANCED INCOME FUND
[jp morgan logo]
Annual Report
October 31, 2000
<PAGE>
LETTER TO THE SHAREHOLDERS
--------------------------------------------------------------------------------
December 1, 2000
Dear Shareholder,
For the 12 months ended October 31, 2000, the J.P. Morgan Tax Aware
Enhanced Income Fund: Institutional Shares provided a total return of 4.55%, and
the J.P. Morgan Tax Aware Enhanced Income Fund: Select Shares posted a total
return of 4.29%.
The Fund underperformed the Lipper Short-Intermediate Investment Grade Debt
Funds Average, and Merrill Lynch 3-Month U.S. Treasury Bill Index, which
returned 5.69% and 5.92%, respectively.
As of October 31, 2000, the net assets of the J.P. Morgan Tax Aware
Enhanced Income Fund: Institutional Shares were approximately $299 million,
while the Select Shares' net assets were approximately $37 million. Dividends of
approximately $0.09 and $0.08 per share were paid to Institutional and Select
Shares, respectively, from ordinary income, of which approximately $0.08 and
$0.07, respectively, were exempt from federal income tax.
This report includes an interview with Abigail Feder, the lead portfolio
manager of the Tax Aware Enhanced Income Fund. Abigail discusses the
fixed-income markets in detail, and explains the factors that influenced Fund
performance during the fiscal period. Abigail also provides insight in regard
to positioning the Fund for the coming months.
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
contact your Morgan representative, or call J.P. Morgan Funds Services at (800)
766-7722 (Institutional Shares) or (800) 521-5411 (Select Shares).
Sincerely yours,
/signature/ /signature/
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 OF CONTENTS
--------------------------------------------------------------------------------
Letter to the Shareholders 1
Fund Performance 2
Portfolio Q&A 4
Fund Facts & Highlights 5
Financial Statements 6
1
<PAGE>
FUND PERFORMANCE - INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance. One
approach is to look at the growth of a hypothetical investment. The chart at
right shows that $5,000,000 (the minimum investment in the Fund) invested on
April 30, 1999*, would have increased to $5,303,859 on October 31, 2000.
Another way is to review a fund's average annual total return. This
calculation takes the Fund's actual 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, and 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 $5,000,000 SINCE FUND INCEPTION*
April 30, 1999-October 31, 2000
[data from line chart]
Merrill Lynch 3-Month U.S. Treasury Bill Index $5,428,611
Lipper Short-Intermediate Grade Debt Funds Average $5,306,400
J.P. Morgan Tax Aware Enhanced Income Fund: Institutional Shares $5,303,859
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL AVERAGE ANNUAL
RETURNS TOTAL RETURNS
------------------------------------
ONE SINCE
YEAR INCEPTION*
AS OF OCTOBER 31, 2000
<S> <C> <C>
J.P. Morgan Tax Aware Enhanced
Income Fund: Institutional Shares* 4.55% 4.01%
Merrill Lynch 3-Month U.S. Treasury Bill Index** 5.92% 5.62%
Lipper Short-Intermediate Investment
Grade Debt Funds Average 5.69% 6.13%
AS OF SEPTEMBER 30, 2000
J.P. Morgan Tax Aware Enhanced
Income Fund: Institutional Shares* 4.48% 3.94%
Merrill Lynch 3-Month U.S. Treasury Bill Index** 5.78% 5.57%
Lipper Short-Intermediate Investment
Grade Debt Funds Average 5.74% 5.93%
</TABLE>
* The Institutional Shares commenced operations on April 16, 1999 and have
provided an average annual total return of 3.99% from that date through October
31, 2000. For the purpose of comparison, "since inception" returns in the tables
above are calculated from April 30, 1999.
** The Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged index
that tracks the performance of the 3-month U.S. Treasury market.
The index does not include fees or expenses and is not available for actual
investment.
Past performance is no guarantee of future results. Returns are net of fees,
assume the reinvestment of distributions and reflect the reimbursement
of certain expenses as described in the prospectus. Had expenses not been
subsidized, returns would have been lower. Lipper Analytical Services, Inc. is
a leading provider of mutual fund data.
2
<PAGE>
FUND PERFORMANCE - SELECT SHARES
--------------------------------------------------------------------------------
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance.
One approach is to look at the growth of a hypothetical investment. The chart
at right shows that $10,000 invested on April 30, 1999*, would have increased
to $10,569 on October 31, 2000.
Another way is to review a fund's average annual total return. This
calculation takes the Fund's actual 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, and 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*
April 30, 1999-October 31, 2000
[data from line chart]
Merrill Lynch 3-Month U.S. Treasury Bill Index $10,857
Lipper Short-Intermediate Investment Grade Debt Funds Average $10,613
J.P. Morgan Tax Aware Enhanced Income Fund: Select Shares $10,569
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL AVERAGE ANNUAL
RETURNS TOTAL RETURNS
-----------------------------
ONE SINCE
YEAR INCEPTION*
AS OF OCTOBER 31, 2000
<S> <C> <C>
J.P. Morgan Tax Aware Enhanced
Income Fund: Select Shares* 4.29% 3.76%
Merrill Lynch 3-Month U.S. Treasury Bill Index** 5.92% 5.62%
Lipper Short-Intermediate Investment
Grade Debt Funds Average 5.69% 6.13%
AS OF SEPTEMBER 30, 2000
J.P. Morgan Tax Aware Enhanced
Income Fund: Select Shares* 4.22% 3.69%
Merrill Lynch 3-Month U.S. Treasury Bill Index** 5.78% 5.57%
Lipper Short-Intermediate Investment
Grade Debt Funds Average 5.74% 5.93%
</TABLE>
* The Select Shares commenced operations on May 6, 1999. Performance from
April 30, 1999 to May 6, 1999 reflects the historical performance of the
Fund's Institutional Shares, which have a lower expense ratio. For the purpose
of comparison, "since inception" returns in the tables above are calculated
from April 30, 1999. The Select Shares' average annual total return from
commencement of operations on May 6, 1999 to October 31, 2000 is 3.75%.
** The Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged index
that tracks the performance of the 3-month U.S. Treasury market. The index
does not include fees or expenses and is not available for actual investment.
Past performance is no guarantee of future results. Returns are net of fees,
assume the reinvestment of distributions and reflect reimbursement of certain
expenses as described in the prospectus. Had expenses not been subsidized,
returns would have been lower. Lipper Analytical Services, Inc. is a leading
provider of mutual fund data.
3
<PAGE>
PORTFOLIO MANAGER Q&A
-------------------------------------------------------------------------------
[photo of Abigail Jones Feder]
The Following is an interview with ABIGAIL JONES FEDER, vice president, and
member of the portfolio management team for the Tax Aware Enhanced Income Fund.
Abigail is the head of the short-term and tax-aware product group, and
specializes in short-term taxable and tax-aware fixed income strategies. Prior
to joining J.P. Morgan Investment Management in 2000, she worked at Morgan
Stanley Dean Witter Investment Management (MSDW) for 14 years, and was
responsible for managing short-term fixed income portfolios. Within this
capacity, she managed both taxable and tax-aware portfolios, and invested in a
broad range of fixed income instruments across much of the yield curve. She was
a senior member of the MSDW corporate team representing the asset-backed
security sector. Prior to her work as a portfolio manager, she held an analyst
position within Morgan Stanley's investment banking division. Abigail holds a
B.A. from Vassar College.
What had the greatest impact on the Fund during this reporting period?
Since the Fund's inception in April 1999, the Federal Reserve has increased
interest rates by 175 basis points (1.75%), which clearly impacted fixed-income
markets. Despite market conditions, we maintained a relatively stable NAV in the
Tax-Aware Enhanced Income Fund, and the Fund's share prices fluctuated only
$0.02.
The municipal market is always influenced by technical factors caused by
shifts in the balance between supply and demand, and this past year was no
exception. Decreased supply in municipals maturing in the 2-5 year portions of
the yield curve forced rates down during the late spring. This created a
challenge as we searched for attractive investments. Technicals came into play
again in September, and municipals became very expensive. This caused us to
re-allocate approximately 10% of the portfolio into the taxable sector. As
October unfolded, the taxable/tax-exempt relationship returned to more normal
levels, prompting us to move back into the tax-exempt sector.
How was the Fund positioned over this period?
Duration during the fiscal year remained in a band from 0.75 to slightly
longer than one year. We shifted duration at different points during the year
to reflect our outlook on the yield curve and interest rates. The Fund ended
the year with a duration of 0.9, slightly short of our strategic duration
target.
During the year, the Fund benefited from a high concentration in the
municipal sector. In fact, throughout the year, the Fund held at least 80% of
its investments in municipals, and at times as much as 95%. Within the
tax-exempt sector, we held investment grade securities that are outside the
municipal money market universe. For example, the portfolio included allocations
to auction rate securities, 2-3 year duration municipals, and high-coupon
short-callable municipals. The Fund's overall credit quality is AA-.
Why the concentration in municipals?
All investments are analyzed on a pre-tax equivalent basis assuming the
highest marginal tax bracket. Although relative to historical periods in which
municipals have been considerably cheaper on an absolute basis, when grossed up
and compared to taxable alternatives, the municipals remain the more attractive
sector, thus the rationale for our high allocation throughout the year.
How do you think the market will develop over the near term?
In the municipal bond market, we expect near-term issuance to pick up as
issuers and investment bankers push to get deals done before year-end. Once
past the potential supply bulge, we are looking for stronger relative
performance as we move into the new year. Approximately 35% of municipals pay
coupons and/or principal on the first day of the year, which will decrease
supply. We expect this technical to give a nice bid to the market in early
January.
In terms of interest rates, we expect that the Federal Reserve will remove
their tightening bias at their upcoming meeting. Economic data releases continue
to build the case that the economy will achieve a soft landing and that
inflation will remain contained. The market believes that the Fed's next move is
more likely an ease than a tightening, and that the Fed will take action during
the first quarter of 2001.
How are you positioning the Fund going forward?
We believe the Fund is well positioned to benefit from changing market
conditions. We are confident that the portfolio's duration reflects our view on
the yield curve. Also, we are comfortable with the balance of taxable and
tax-exempt holdings. Within the tax-exempt sector, select holdings may benefit
over the near term.
4
<PAGE>
FUND FACTS
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
J.P. Morgan Tax Aware Enhanced Income Fund seeks to provide a high level of
current after tax income consistent with principal preservation by investing in
tax exempt and taxable fixed income securities.
--------------------------------------------------------------------------------
Inception Date:
Institutional Shares: 4/16/1999
Select Shares: 5/6/1999
--------------------------------------------------------------------------------
Net Assets as of 10/31/2000:
Institutional Shares: $298,900,909
Select Shares: $36,687,559
--------------------------------------------------------------------------------
Fund Net Assets as of 10/31/2000: $335,588,468
--------------------------------------------------------------------------------
Dividend Payable Dates: MONTHLY
--------------------------------------------------------------------------------
Capital Gain Payable Dates
(if applicable): 12/13/2000
EXPENSE RATIOS
Institutional Shares: 0.25%
Select Shares: 0.50%
The current annualized expense ratios cover shareholder expenses for
custody, tax reporting, investment advisory, and shareholder services, after
reimbursement. The Fund is no-load and does not charge any sales, redemption, 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 October 31, 2000
PORTFOLIO ALLOCATION
(As a percentage of total investments)
[data from pie chart]
<TABLE>
<S> <C>
Auction Rate Debt Bonds 26.9%
Short-Term Investments 25.7%
Revenue Bonds 17.8%
Prerefunded 11.3%
Insured 8.8%
General Obligations 4.3%
Corporate 3.3%
Private Placements 1.9%
</TABLE>
--------------------------------------------------------------------------------
30 Day SEC Yield:
Institutional Shares: 5.04%*
Select Shares: 4.79%*
* Yields reflect the reimbursement of certain fund expenses as described in the
prospectus. Had expenses not been subsidized, yields would have been lower.
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY THE FDIC,
ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL INSTITUTION AND ARE
NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES OF THE FUND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
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 (SELECT SHARES) OR (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>
TAX AWARE ENHANCED INCOME FUND - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <C> <S> <C>
CORPORATE BONDS - 3.3%
ELECTRICAL UTILITY - 0.9%
$ 3,000,000 Dominion Resources Inc.,
7.40%, 9/16/02 $ 3,001,680
-----------------
FOOD & BEVERAGE - 1.5%
5,000,000 Pepsico Inc.,
7.43%, 8/17/07 5,003,500
-------------------
OIL SERVICES - 0.9%
2,887,000 Enron Corp.,
6.50%, 8/1/02 2,861,681
--------------------
TOTAL CORPORATE BONDS 10,866,861
--------------------
(Cost $10,864,242)
MUNICIPALS - 71.0%
AUCTION RATE DEBT BOND - 26.9%
DISTRICT OF COLUMBIA - 0.9%
3,000,000 District of Columbia Rev., Series
1999 A, (University of Georgetown),
4.50%, 11/1/00(v) 3,000,000
-------------------
LOUISIANA - 2.1%
4,000,000 Louisiana Public Facilities Auth.
Rev., Series 1999 A-1, 4.35%,
11/17/00(MBIA)(v) 4,000,000
3,000,000 Louisiana Public Facilities Auth.
Rev., Series 1999 A-3, 4.35%,
11/22/00(MBIA)(v) 3,000,000
-------------------
7,000,000
-------------------
MAINE - 3.2%
5,000,000 Maine Educational Loan Marketing Corp.
Student Loan Rev., Series 1994 A-1,
4.52%, 11/1/00(v) 5,000,000
3,000,000 Maine Educational Loan Marketing Corp.
Student Loan Rev., Series 1994 A-2,
4.35%, 11/8/00(v) 3,000,000
2,400,000 Maine Educational Loan Marketing Corp.
Student Loan Rev., Series 1996 A-1,
4.40%, 11/22/00(v) 2,400,000
------------------
10,400,000
------------------
MICHIGAN - 0.4%
1,350,000 Michigan Higher Education Student Loan
Auth. Rev., Series 2000 XII-U,
4.35%, 11/7/00(AMBAC)(v) 1,350,000
------------------
MISSISSIPPI - 0.9%
3,000,000 Mississippi Higher Education Assistance
Corp., Series 1996 A, 4.38%,
11/22/00(v) 3,000,000
------------------
MONTANA - 3.3%
6,000,000 Montana Higher Education Student Assistance
Corp. Student Loan Rev., Series 1995 C,
4.45%, 11/24/00(v) 6,000,000
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------
$ 3,000,000 Montana Higher Education Student Assistance
Corp. Student Loan Rev., Series 1998 A,
4.54%, 11/1/00(v) $ 3,000,000
1,900,000 Montana State Higher Education Assistance
Corp., Series 1995 A, 4.40%, 11/10/00(v) 1,900,000
------------------
10,900,000
------------------
NEW MEXICO - 1.2%
4,000,000 New Mexico Educational Assistance Foundation,
Series 1996 B-1, (Student Loan Program),
4.41%, 11/21/00(v) 4,000,000
------------------
OHIO - 2.3%
3,000,000 Student Loan Funding Corp., Series
1995 B-1, 4.45%, 12/4/00(v) 3,000,000
2,000,000 Student Loan Funding Corp., Series 1995
B-3, 4.40%, 11/16/00(AMBAC)(v) 2,000,000
2,500,000 Student Loan Funding Corp., Series
1997 A-5, 4.42%, 11/23/00(v) 2,500,000
------------------
7,500,000
------------------
OKLAHOMA - 0.3%
1,000,000 Oklahoma Student Loan Auth., Series 1994
A-1, 4.40%, 11/30/00(v) 1,000,000
------------------
RHODE ISLAND - 2.2%
3,000,000 Rhode Island Student Loan Auth. Student
Loan Rev., Series 1993 B, 4.60%,
11/3/00(v) 3,000,000
3,000,000 Rhode Island Student Loan Auth. Student
Loan Rev., Series 1995 A, 4.40%,
11/24/00(v) 3,000,000
1,300,000 Rhode Island Student Loan Auth. Student
Loan Rev., Series 1997-1, 4.37%,
11/8/00(v) 1,300,000
------------------
7,300,000
------------------
SOUTH CAROLINA - 1.2%
3,900,000 South Carolina Education Assistance Auth.
Rev., Series 1994 A-1, (Guaranteed
Student Loans), 4.40%, 11/22/00(v) 3,900,000
------------------
SOUTH DAKOTA - 4.5%
9,000,000 Education Loans Inc., Series 1998-1A, 4.45%,
11/30/00(v) 9,000,000
3,000,000 Education Loans Inc., Series 1998-1B, 4.55%,
11/2/00(v) 3,000,000
3,000,000 Education Loans Inc., Series 1998-1E, 4.42%,
11/23/00(v) 3,000,000
------------------
15,000,000
------------------
TEXAS - 3.2%
3,000,000 Abilene Higher Education Auth. Rev.,
4.40%, 11/29/00(v) 3,000,000
2,000,000 Abilene Higher Education Auth. Rev.,
Series 1998 A, 4.60%, 11/2/00(v) 2,000,000
2,700,000 Brazos Higher Education Auth. Rev.,
Series 1998 A-1, 4.45%, 12/1/00(v) 2,700,000
2,800,000 Brazos Higher Education Auth. Rev.,
Series 1998 A-1, 4.50%, 12/1/00(v) 2,800,000
------------------
10,500,000
------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
6
<PAGE>
TAX AWARE ENHANCED INCOME FUND - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
VERMONT - 1.2%
$ 2,000,000 Vermont Student Assistance Corp.
Education Loan Rev., Series 1993 G,
4.40%, 11/29/00(FSA)(v) $ 2,000,000
2,000,000 Vermont Student Assistance Corp.
Education Loan Rev., Series 1993 I,
4.43%, 11/22/00(FSA)(v) 2,000,000
----------------
4,000,000
----------------
TOTAL AUCTION RATE DEBT BONDS 88,850,000
----------------
GENERAL OBLIGATIONS & HOUSING
AUTHORITY - 4.3%
KENTUCKY - 1.9%
6,000,000 Kentucky Rural Water Finance Corp.,
5.00%, 2/2/02 6,037,500
----------------
TEXAS - 1.8%
4,000,000 Harris County Rev. GO, 6.75%, 8/1/14 4,148,200
2,000,000 Houston Independent School District GO,
(Capital Appreciation), 4.64%, 8/15/02,
(AMBAC)(y) 1,842,500
----------------
5,990,700
----------------
WASHINGTON - 0.6%
2,000,000 Washington GO, Series 1991 R92-B, 6.25%,
9/1/09 2,027,520
----------------
TOTAL GENERAL OBLIGATIONS & HOUSING AUTHORITY 14,055,720
----------------
INSURED - 8.8%
CALIFORNIA - 0.3%
1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev., Series
1991 B, 6.50%, 7/1/13(AMBAC) 1,035,030
----------------
FLORIDA - 0.6%
1,900,000 Tampa Utility Tax & Special Rev., 6.90%,
10/1/09(AMBAC) 1,972,998
----------------
NEVADA - 1.5%
4,500,000 Clark County Industrial Development Rev.,
Series 1992 C, (Nevada Power Co.), 7.20%,
10/1/22(AMBAC) 4,798,125
----------------
NEW YORK - 1.5%
5,000,000 New York GO, Series 1991 A, 3.00%, 8/15/02
(MBIA-IBC) 4,881,250
---------------
PENNSYLVANIA - 4.3%
4,000,000 Pennsylvania Intergovernmental Cooperative
Auth. Rev., (City of Philadelphia
Funding Program), 6.00%, 6/15/02(FGIC) 4,100,000
9,775,000 Pennsylvania Intergovernmental Cooperative
Auth. Rev., (City of Philadelphia
Funding Program), 6.00%, 6/15/02(FGIC) 9,921,624
---------------
14,021,624
---------------
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
VIRGINIA - 0.6%
$ 2,000,000 Metropolitan Washington Airports Auth.
General Airport Rev., Series 1992 A,
6.63%, 10/1/12(MBIA) $ 2,097,500
----------------
TOTAL INSURED 28,806,527
----------------
PREREFUNDED - 11.3%
COLORADO - 0.6%
1,775,000 Colorado Springs Utilities Rev., Series
1991 C, 6.75%, 11/15/01 1,838,510
----------------
DISTRICT OF COLUMBIA - 1.6%
5,000,000 District of Columbia, Series 1992 B, 6.30%,
6/1/02, Prerefunded at 102% of Par(MBIA) 5,231,250
----------------
FLORIDA - 0.5%
1,430,000 Bay County Hospital System Rev., (Bay
Medical Center Project), 8.00%, 10/1/01,
Prerefunded at 102% of Par 1,598,025
----------------
INDIANA - 0.3%
1,000,000 Indiana Transportation Finance Auth.
Rev., Series 1992 A, 6.25%, 11/1/02,
Prerefunded at 102% of Par 1,052,500
----------------
MASSACHUSETTS - 0.6%
2,000,000 Lowell GO, 8.40%, 1/15/01, Partially
Prerefunded at 102% of Par 2,054,740
---------------
NEVADA - 1.8%
6,000,000 Clark County School District Rev. GO,
Series 1991 A, 7.00%, 6/1/01, Prerefunded
at 101% of Par(MBIA) 6,149,700
---------------
NEW JERSEY - 0.6%
1,750,000 New Jersey Turnpike Auth. Rev.,
Series 1992 A, 5.90%, 1/1/02, Prerefunded
at 102% of Par 1,813,438
---------------
NEW MEXICO - 1.0%
2,800,000 Albuquerque Retirement Facilities Rev.,
Series 1993 A, (La Vida Liena), 8.85%,
2/1/03, Prerefunded at 102% of Par 3,129,000
---------------
OHIO - 1.4%
2,000,000 Cleveland Parking Facility Rev., 8.10%,
9/15/02, Prerefunded at 102% of Par 2,165,000
2,300,000 Hilliard School District GO, 6.30%, 12/1/01,
Prerefunded at 102% of Par 2,393,035
---------------
4,558,035
---------------
PENNSYLVANIA - 1.7%
5,570,000 Lehigh County General Purpose Auth.
Rev., (Wiley House), 9.38%, 11/1/01,
Prerefunded at 102% of Par 5,943,413
---------------
WASHINGTON - 1.2%
4,000,000 Tacoma Electric System Rev., (Linked
Savers & Ribs), 6.51%, 11/1/01, Prerefunded
at 102% of Par(AMBAC) 4,082,680
---------------
TOTAL PREREFUNDED 37,451,291
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
TAX AWARE ENHANCED INCOME FUND - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
PRIVATE PLACEMENT - 1.9%
WISCONSIN - 1.9%
$ 6,250,000 Wisconsin Health & Educational Facilities
Auth. Rev., Series 1999 A, (Carthage
College Project), 4.45%, 5/1/29 $ 6,195,313
----------------
REVENUE BONDS - 17.8%
ALASKA - 2.2%
6,625,000 Alaska Housing Finance Corp. Rev.,
Series 1992 A, 6.38%, 12/1/12 6,964,531
----------------
COLORADO - 0.6%
2,000,000 Denver City & County Airport Rev.,
Series 1992 B, 7.25%, 11/15/05 2,118,920
----------------
FLORIDA - 1.4%
2,495,000 Florida Mid-Bay Bridge Auth. Rev.,
Series 1991 A, 7.50%, 10/1/17 2,621,497
2,000,000 Florida Mid-Bay Bridge Auth. Rev.,
Series 1991 B, 8.50%, 10/1/22 2,118,800
----------------
4,740,297
----------------
KANSAS - 1.6%
5,140,000 Sedgwick & Shawnee Counties Single Family
Rev., 4.70%, 12/1/08(GNMA) 5,114,300
----------------
MAINE - 0.3%
1,090,000 Maine Educational Loan Marketing Corp.
Student Loan Rev., Series 1994 A-4,
5.85%, 11/1/02 1,111,800
----------------
MICHIGAN - 1.7%
2,555,000 Michigan State Hospital Finance Auth.
Rev., Series 2000 A, (Trinity Health),
5.50%, 12/1/04 2,580,550
3,000,000 Michigan State Strategic Fund Ltd.
Obligation Rev., Series 1999 C,
(Detroit Edison), 4.73%, 9/1/29 3,006,570
----------------
5,587,120
----------------
NORTH CAROLINA - 1.4%
4,435,000 North Carolina Housing Finance Agency
Rev., Series 2000 A, (Student Housing -
Appalachian State University), 5.50%,
7/1/31(LOC:First Union National Bank) 4,518,156
---------------
OKLAHOMA - 1.5%
5,000,000 Tulsa County Industrial Auth. Rev.,
Series 1993 B, (St. Francis Hospital Inc.),
5.15%, 12/15/18 5,031,250
--------------
TEXAS - 7.1%
5,000,000 Brazos River Auth. Rev., Series 1995 B,
(Utilities Electric Co.), 5.50%, 12/19/00 5,021,050
10,000,000 Brazos River Auth. Rev., Series 1999 A,
(Utility Electric Co.), 5.00%, 4/1/33 10,019,399
5,000,000 Dallas-Fort Worth International Airport Facility
Improvement Corp. Rev., Series 2000 A,
(American Airlines), 5.95%, 5/1/29 5,056,250
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
$ 3,000,000 Matagorda County Navigation District No. 1
Pollution Control Rev., Series 1999 A,
(Central Power & Light), 4.90%, 5/1/30 $ 3,002,280
----------------
23,098,979
----------------
TOTAL REVENUE BONDS 58,285,353
----------------
TOTAL MUNICIPALS 233,644,204
----------------
(Cost $233,227,724)
SHORT-TERM INVESTMENTS - 25.7%
ASSET-BACKED SECURITIES - 1.5%
ELECTRICAL UTILITY - 1.5%
5,000,000 Peco Energy Transition Trust, Series 1999 A,
Class A3 Floater, 6.95%, 3/1/01, resets semi-
annually off the 6-month LIBOR plus
0.125% with no caps(v) 4,995,300
-----------------
MUNICIPALS - 12.9%
NEW YORK - 1.2%
2,000,000 New York City Transitional Finance Auth.
Rev., Series 2000-A16, 5.25%, 11/1/00(v) 2,000,000
2,000,000 New York GO, Series 1999 J, 5.00%, 5/15/01 2,007,200
-----------------
4,007,200
-----------------
SOUTH CAROLINA - 1.5%
5,000,000 South Carolina Jobs-Economic Development
Auth. Rev., Series 1999 B, (St. Francis
Hospital Inc.), 5.93%, 11/2/00(v) 4,999,050
-----------------
VIRGINIA - 0.9%
3,000,000 Virginia Transportation Board Transportation
Contract Rev., Series 1999 A6, Registered
D Shares, 4.55%, 11/1/00 3,000,000
-----------------
WASHINGTON - 1.4%
4,515,000 Chelan County Public Utility District No. 1,
Series 1987 B, 7.55%, 7/1/02(v) 4,602,726
-----------------
WEST VIRGINIA - 2.4%
8,000,000 West Virginia Hospital Finance Auth.,
Series 1999 C, (Charleston Area), 7.63%,
11/3/00(v) 8,000,000
-----------------
WISCONSIN - 1.5%
5,000,000 De Pere Development Rev., Series 1999 A,
(RE Box Packaging Project), 4.20%,
12/1/00(v) 4,998,100
-----------------
OTHER - 4.0%
13,000,000 Puttable Floating Tax Exempt Receipts, 4.68%,
11/2/00(v) 13,000,000
-----------------
TOTAL MUNICIPALS 42,607,076
-----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
TAX AWARE ENHANCED INCOME FUND - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT/UNITS VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANIES - 9.8%
32,104,972 J.P. Morgan Institutional
Prime Money Market* 32,104,972
--------------
PRIVATE PLACEMENT - 1.5%
5,000,000 Wisconsin Health & Educational Facilities
Auth. Rev., Series 1999, (Beloit
College Project), 4.71%, 11/7/00(v) 5,000,000
---------------
TOTAL SHORT-TERM INVESTMENTS 84,707,348
---------------
(Cost $84,692,741)
TOTAL INVESTMENT SECURITIES - 100.0% $329,218,413
===============
(Cost $328,784,707)
</TABLE>
AMBAC - AMBAC Indemnity Corp.
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Securities Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
IBC - IBC Financial Data, Inc.
LIBOR - London Interbank Offered Rate
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance Corp.
(v) Variable or floating rate instrument or instrument with a step coupon rate.
(y) Yield to maturity
* Affiliate--Money Market mutual fund registered under the Investment Company
Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $328,784,707) $329,218,413
Receivable for Shares Sold 11,282,338
Dividend and Interest Receivable 4,543,473
Receivable for Investments Sold 700,000
Receivable for Expense Reimbursement 67,982
Prepaid Trustees' Fees and Expenses 306
Prepaid and Other Assets 168
------------
TOTAL ASSETS 345,812,680
------------
LIABILITIES
Payable for Investments Purchased 7,786,251
Payable for Capital Shares Redeemed 1,891,615
Dividends Payable 272,562
Due to Custodian 65,818
Advisory Fee Payable 65,025
Shareholder Servicing Fee Payable 30,509
Administrative Service Fee Payable 12,448
Fund Services Fee Payable 203
Administration Fee Payable 99
Accrued Expenses and Other Liabilities 99,682
------------
TOTAL LIABILITIES 10,224,212
------------
NET ASSETS $335,588,468
============
NET ASSETS
INSTITUTIONAL SHARES
Applicable to 150,089,939 shares outstanding $298,900,909
============
Net Asset Value, Offering and Redemption Price per Share $1.99
============
SELECT SHARES
Applicable to 18,412,829 shares outstanding $36,687,559
============
Net Asset Value, Offering and Redemption Price per Share $1.99
============
ANALYSIS OF NET ASSETS
Paid-in Capital $336,616,481
Undistributed Net Investment Income 13,641
Accumulated Net Realized Loss on Investments (1,475,360)
Net Unrealized Appreciation on Investments 433,706
------------
NET ASSETS $335,588,468
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF OPERATIONS
------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
INCOME
Interest Income $14,605,073
Dividend Income 188,213
Dividend Income from Affiliated Investment 445,786
-----------
Investment Income 15,239,072
-----------
EXPENSES
Advisory Fee 796,257
Shareholder Servicing Fee - Institutional Shares 294,887
Administrative Service Fee 159,121
Custody Fee 100,214
Shareholder Servicing Fee - Select Shares 77,647
Professional Fee 48,364
Registration Fee 18,428
Printing Expenses 10,369
Fund Services Fee 5,238
Trustees' Fees and Expenses 3,977
Administration Fee 2,182
Miscellaneous 136,034
-----------
Total Expenses 1,652,718
Less: Reimbursement of Expenses (766,081)
-----------
Net Expenses 886,637
-----------
NET INVESTMENT INCOME 14,352,435
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED LOSS ON INVESTMENT TRANSACTIONS (1,028,069)
-----------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENT TRANSACTIONS
1,531,766
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $14,856,132
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 2000 1999(a)
FROM OPERATIONS
<S> <C> <C>
Net Investment Income $ 14,352,435 $ 6,010,638
Net Realized Loss on Investment Transactions (1,028,069) (447,291)
Net Change in Unrealized Appreciation
(Depreciation) on Investments 1,531,766 (1,098,060)
--------------- --------------
Net Increase in Net Assets Resulting from Operations 14,856,132 4,465,287
--------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Institutional Shares (13,028,150) (5,639,686)
Select Shares (1,310,644) (370,952)
--------------- --------------
Total Distributions from Net Investment Income (14,338,794) (6,010,638)
--------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 300,932,189 442,652,632
Reinvestment of Distributions 10,939,063 4,545,226
Cost of Shares of Beneficial Interest Redeemed (359,345,900) (63,106,729)
-------------- --------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest (47,474,648) 384,091,129
--------------- ---------------
Total Increase (Decrease) in Net Assets (46,957,310) 382,545,778
--------------- ---------------
NET ASSETS
Beginning of Period 382,545,778 -
--------------- -------------
End of Period $335,588,468 $382,545,778
--------------- -------------
Undistributed Net Investment Income $13,641 $-
=============== =============
</TABLE>
(a) For the period April 16, 1999 (commencement of operations) through October
31, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND - INSTITUTIONAL SHARES
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD ARE AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 16, 1999
(COMMENCEMENT OF
FOR THE YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 2000 OCTOBER 31, 1999(A)
-----------------------------------------------
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $1.99 $2.00
-----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.09 0.04
Net Realized and Unrealized Loss on Investments (0.00)(b) (0.01)
-----------------------------------------------
Total From Investment Operations 0.09 0.03
-----------------------------------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.09) (0.04)
-----------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $1.99 $1.99
===============================================
RATIOS AND SUPPLEMENTAL DATA
Total Return 4.55% 1.57%(c)
Net Assets, End of Period (in thousands) $298,901 $354,823
Ratios to Average Net Assets
Net Expenses 0.25% 0.25%(d)
Net Investment Income 4.43% 4.01%(d)
Expenses Without Reimbursement 0.50% 0.57%(d)
Portfolio Turnover 172% 69%(c)
</TABLE>
(a) The figures have been adjusted to reflect a stock split that occurred on
July 27, 1999. (7.50251256 to 1)
(b) Less than $0.005.
(c) Not Annualized.
(d) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND - SELECT SHARES
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD ARE AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 6, 1999
(COMMENCEMENT OF
FOR THE YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 2000 OCTOBER 31, 1999(A)
-----------------------------------------------
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $1.99 $2.00
-----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.04
Net Realized and Unrealized Loss on Investments (0.00)(b) (0.01)
-----------------------------------------------
Total From Investment Operations 0.08 0.03
-----------------------------------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.08) (0.04)
-----------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $1.99 $1.99
===============================================
RATIOS AND SUPPLEMENTAL DATA
Total Return 4.29% 1.29%(c)
Net Assets, End of Period (in thousands) $36,688 $27,723
Ratios to Average Net Assets
Net Expenses 0.50% 0.50%(d)
Net Investment Income 4.23% 3.75%(d)
Expenses Without Reimbursement 0.67% 0.72%(d)
Portfolio Turnover 172% 69%(c)
</TABLE>
(a) The figures have been adjusted to reflect a stock split that occurred on
July 27, 1999. (7.51256281 to 1)
(b) Less than $0.005.
(c) Not Annualized.
(d) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--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 an 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 operation on April 16, 1999 and Select Shares which commenced
operations on May 6, 1999. On July 27, 1999, both share classes had a share
split. This lowered the Fund's net asset value to $1.99, which should reduce
overall price volatility. 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 accounting
principles generally accepted in the United States of America 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:
SECURITY VALUATIONS--Fixed Income Securities, (other than convertible
bonds), with a maturity of 60 days or more held by Funds other than money market
funds will be valued each day based on readily available market quotations
received from independent or affiliated commercial pricing services. Such
pricing services will generally provide bidside quotations. Convertible bonds
are valued at the last sale price on the primary exchange on which the bond is
principally traded. When valuations are not readily available, securities are
valued at fair value as determined in accordance with procedures adopted by
the Trustees. All short-term securities with a remaining maturity of sixty
days or less are valued using the amortized cost method.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld, if any, is
recorded on the ex-dividend date or at the time that the relevant ex-dividend
and amount becomes known. Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums. Net investment
income, excluding shareholder servicing fees, and realized and unrealized 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 each day.
INCOME TAX STATUS--It is the Fund's policy to distribute all net investment
income and net realized gains to shareholders and to otherwise qualify as a
regulated investment company under the provisions of the Internal Revenue Code.
Accordingly, no provision has been made for federal or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are
declared daily and paid monthly. Distributions from net realized gains, if any,
are declared and paid annually.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
ADVISORY--The Trust, on behalf of 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 & Co. Incorporated ("J.P. Morgan"). Under the terms
of the agreement, the Fund pays JPMIM at an annual rate of 0.25% of the Fund's
average daily net assets.
The Fund may invest in one or more affiliated money market funds: J.P.
Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax
Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund
and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed
to reimburse its advisory fee from the Fund in an amount to offset any
investment advisory, administrative fee and shareholder servicing fees related
to a Fund investment in an affiliated money market fund. For the year ended
October 31, 2000, Morgan has agreed to reimburse Institutional Shares and Select
Shares $16,855 and $1,779, respectively, for expenses under this agreement.
ADMINISTRATIVE SERVICES--The Trust 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 Trust 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
15
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 Funds Distributor, Inc. 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.
Morgan has agreed to reimburse the Fund to the extent necessary to maintain
the total operating expenses (which excludes interest and dividend expenses,
taxes and extraordinary items) of the Fund at no more than 0.25% of the average
daily net assets of the Institutional Shares and 0.50% of the average daily net
assets of the Select Shares. This reimbursement arrangement can be changed or
terminated at any time after February 28, 2001 at the option of Morgan.
ADMINISTRATION--The Trust 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, 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 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 FDI provides similar services.
SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with
Morgan under which Morgan provides account administration and personal account
maintenance service to Fund shareholders. The agreement provides for the Fund to
pay Morgan a fee for these services that is computed daily and paid monthly at
an annual rate of 0.10% of the average daily net assets of the Institutional
Shares and 0.25% of the average daily net assets of the Select 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 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.
FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group,
Inc. ("PGI") to assist the Trustees in exercising their overall supervisory
responsibilities for the Trust's affairs. The Trustees of the Fund represent all
the existing shareholders of PGI.
Each Trustee receives an aggregate annual fee of $75,000 for serving on the
boards 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 represent the Fund's
allocated portion of the total Trustees' fees and expenses. The Trust's Chairman
and Chief Executive Officer also serves as Chairman of PGI and receives
compensation and employee benefits from PGI. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown on the
Statement of Operations was $1,000.
--------------------------------------------------------------------------------
3. FEDERAL INCOME TAXES
As of October 31, 2000, accumulated net unrealized appreciation was
$433,706, based on the aggregate cost of investments for federal income tax
purposes of $328,784,707, which consisted of unrealized appreciation of $533,860
and unrealized depreciation of $100,154.
For federal income tax purposes, the Fund had a capital loss carryforward as
of October 31, 2000, of approximately $1,475,360 of which $447,291 expires in
2007 and $1,028,069 expires in 2008. Accordingly, no capital gains distribution
is expected to be paid to shareholders until net gains have been realized in
excess of this amount.
--------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the year ended October 31, 2000, the Fund purchased $441,981,310 of
investment securities and sold $483,330,245 of investment securities other than
U.S. government securities and short-term investments.
16
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
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 Class were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 16, 1999
(COMMENCEMENT OF
FOR THE YEAR ENDED OPERATIONS) THROUGH
INSTITUTIONAL SHARES OCTOBER 31, 2000 OCTOBER 31, 1999
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Sold 125,846,264 $ 250,111,358 59,897,441 $409,818,197
Shares of Beneficial Interest Reinvested 4,919,503 9,773,626 1,819,148 4,238,425
Shares of Beneficial Interest issued due to stock split - - 134,183,876 -
Shares of Beneficial Interest Redeemed (159,311,407) (316,243,626) (17,264,886) (57,789,703)
-------------------------------- --------------------------------
Net Increase (Decrease) (28,545,640) $ (56,358,642) 178,635,579 $356,266,919
================================ ================================
FOR THE PERIOD
MAY 6, 1999
(COMMENCEMENT OF
FOR THE YEAR ENDED OPERATIONS) THROUGH
SELECT SHARES OCTOBER 31, 2000 OCTOBER 31, 1999
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------- --------------------------------
Shares of Beneficial Interest Sold 25,548,682 $ 50,820,831 6,301,706 $32,834,435
Shares of Beneficial Interest Reinvested 586,552 1,165,437 126,790 306,800
Shares of Beneficial Interest issued due to stock split - - 9,632,859 -
Shares of Beneficial Interest Redeemed (21,677,254) (43,102,274) (2,106,506) (5,317,025)
-------------------------------- --------------------------------
Net Increase 4,457,980 $ 8,883,994 13,954,849 $27,824,210
================================ ================================
</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.
--------------------------------------------------------------------------------
6. BANK LOANS
The Fund may borrow money for temporary or emergency purposes, such as
funding shareholder redemptions. Effective May 23, 2000, the Fund, along with
certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of
credit agreement with DeutscheBank. Borrowings under the agreement will bear
interest at approximate market rates and a commitment fee at an annual rate of
0.085% is charged on the unused portion of the committed amount.
--------------------------------------------------------------------------------
7. CONCENTRATIONS OF CREDIT RISK
The ability of the issuers of debt, asset-backed and mortgage-backed
securities to meet their obligations may be affected by the economic and
political developments in a specific industry or region. The value of
asset-backed and mortgage-backed securities can be significantly affected by
changes in interest rates or rapid principal payments including prepayments.
17
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
8. SUBSEQUENT EVENTS
On September 13, 2000, J.P. Morgan & Co. Incorporated and The Chase
Manhattan Corporation announced that they have entered into an agreement and
plan of merger. The transaction is expected to close in December 2000 and is
subject to approval by shareholders of both companies.
18
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustees and Shareholders of
J.P. Morgan Tax Aware Enhanced Income 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 Enhanced
Income Fund (one of the Funds comprising the J.P. Morgan Series Trust, hereafter
referred to as the "Fund") at October 31, 2000, the results of its operations
for the year then ended, and the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 21, 2000
19
<PAGE>
NOTES
--------------------------------------------------------------------------------
20
<PAGE>
[back cover]
For more information on the J.P. Morgan
Funds, call J.P. Morgan Funds Services:
Institutional Shares (800) 766-7722.
Select Shares (800) 521-5411.
---------------------------------------------------------------------
Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-ANN-23761 1000
