[front cover]
J.P. MORGAN
GLOBAL HEALTHCARE FUND
[jp morgan logo]
Annual Report
October 31, 2000
<PAGE>
LETTER TO THE SHAREHOLDERS
--------------------------------------------------------------------------------
December 1, 2000
Dear Shareholder,
We are pleased to present the inaugural shareholder report for the J.P.
Morgan Global Healthcare Fund. The Fund commenced operations on September 29,
2000, and provided a total return of 0.73% through the end of the one month
ending October 31, 2000. The Fund underperformed its benchmark, the MSCI World
Healthcare Index, which returned 1.22% over the same short time period.
The Fund's net asset value on October 31, 2000 was $15.11 per share, an
increase from the Fund's initial share value of $15.00. Despite being
relatively new, the J.P. Morgan Global Healthcare Fund has a notable amount of
assets. At the end of the fiscal period, approximately $36 million was invested
in the Fund.
This report includes an interview with Shawn Lytle, the lead portfolio
manager of the J.P. Morgan Global Healthcare Fund. Shawn discusses the global
healthcare markets in detail, and explains the factors that influenced fund
performance during the fiscal period. Shawn 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
800-521-5411.
/signature/ /signature/
Sincerely yours,
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 Manager Q&A 3
Fund Facts & Highlights 5
Financial Statements 6
1
<PAGE>
FUND PERFORMANCE
--------------------------------------------------------------------------------
EXAMINING PERFORMANCE
One way to review a fund's performance is the 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 in a
fund's value over various time periods, typically one, five, or ten years (or
since inception). Total returns for periods of less than one year are not
annualized and provide a picture of how a fund has performed over the
short-term.
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURNS
----------------------------
<S> <C> <C>
ONE INCEPTION*
MONTH 9/29/00
AS OF OCTOBER 31, 2000
J.P. Morgan Global Healthcare Fund 0.73% 0.73%
MSCI World Healthcare Index** 1.22% 1.22%
</TABLE>
* The Fund commenced operations on September 29, 2000. For the purpose of
comparison, the "since inception" returns are calculated from September 29,
2000, the first date when data for the Fund and it's benchmark were both
available.
** The MSCI World Healthcare Index is an unmananged index that measures the
market performance of the global healthcare sector. 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.
2
<PAGE>
PORTFOLIO MANAGER Q&A
--------------------------------------------------------------------------------
[photo of Shawn Lytle]
The following is an interview with SHAWN LYTLE, vice president and portfolio
manager with J.P. Morgan's Global Micro Group in London. Shawn has been a J.P.
Morgan Investment Management employee since 1992, and was previously responsible
for new business development for independent U.S. money managers. Since joining
Morgan, he has attended the analyst training program and served a brief tour in
J.P. Morgan Investment's San Francisco Private Banking office. Shawn holds a
B.A. in business administration from Georgetown University.
WHAT NOTABLE DEVELOPMENTS HAVE IMPACTED THE PERFORMANCE OF THE GLOBAL
HEALTHCARE ARENA SINCE THE FUND'S INCEPTION ON SEPTEMBER 29, 2000?
Continued volatility in the overall market, especially within the technology
sector, benefited healthcare stocks as investors sought their perceived safety.
As a consequence, the MSCI World healthcare sector outperformed the MSCI World
technology sector by over 8%.
At the start of the fourth quarter of 2000, the pharmaceutical sub-sector
gained momentum and was driven by strong third-quarter earnings' announcements.
On the other hand, the biotechnology sub-sector underperformed, particularly in
early October. Overall, healthcare services stocks provided the best performance
in the sector. The medical technology (medtech) sub-sector also generated
positive returns.
WHICH STOCK SELECTIONS AIDED PERFORMANCE?
Schering-Plough contributed most to the port-folio's performance during
October. This was the result of solid sales growth and earnings that met Wall
Street expectations. In addition, the company reported positive clinical test
data on PEG-Intron, a treatment for hepatitis C. The stock also benefited from
FDA approval of an extension to its patent on the blockbuster allergy drug
Claritin.
Forest Labs was the second largest contributor to performance. The company
benefited from very strong quarterly earnings--up 85% from a year
earlier--driven by strong sales of its anti-depressant drug, Celexa, which
continues to take market share from Eli Lilly's Prozac.
WHERE DID STOCK SELECTION DISAPPOINT?
An untimely reduction of our position in PE Biosystems unfavorably impacted
performance during October. We felt that the company was overly exposed to a
number of risks, including product cycle transition risks, valuation concerns,
and currency-related difficulties. Although we are still confident of these
views, the timing of our reduction coincided with the company's announcement of
strong third-quarter profits, which drove up its share price soon after we
reduced our position in it.
Alza, one of our larger positions in the portfolio, also underperformed in
October. The stock fell 7% over the month, yet was still up 130% through
October 31. The story here had to do with Alza's new Attention Deficit
Hyperactive Disorder (ADHD) drug, Concerta, which has gained market share weekly
since its introduction. Even so, the stock sold off in October, partly due to
an over-reaction by investors to positive news that surfaced about a competing
ADHD drug.
3
<PAGE>
PORTFOLIO MANAGER Q&A
--------------------------------------------------------------------------------
(Continued)
HOW ARE YOU POSITIONING THE FUND GOING FORWARD INTO THE NEXT FISCAL PERIOD?
Our country and sub-sector allocations remain well diversified. We continue
to view the pharmaceuticals area positively, while maintaining a cautious
overweight position in biotechnology. We are neutral to the medtech sub-sector
relative to the benchmark, while we continue with only a small allocation in
healthcare services.
We believe the pharmaceutical sub-sector is still attractive, relative to
other healthcare areas, due to positive earnings growth in the third quarter.
Investors may continue to pursue this sector in the months ahead, again in light
of its perceived safety and earnings stability.
While we believe that the biotech area will continue to report good news on
new research and drugs, we have limited our overweight in the area due to
short-term volatility concerns.
4
<PAGE>
FUND FACTS
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
J.P. Morgan Global Healthcare Fund seeks to provide high total return from
a worldwide portfolio of equity securities in the healthcare sector.
--------------------------------------------------------------------------------
Inception Date: 9/29/2000
--------------------------------------------------------------------------------
Fund Net Assets as of 10/31/2000: $35,808,769
--------------------------------------------------------------------------------
Dividend Payable Dates: 12/20/2000
--------------------------------------------------------------------------------
Capital Gain Payable Dates
(if applicable): 12/20/2000
EXPENSE RATIO
The Fund's current annualized expense ratio of 1.50% covers shareholders'
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
COUNTRY ALLOCATION
(As a percentage of total investment securities)
[data from pie chart]
<TABLE>
<S> <C>
United States 66.2%
Europe 27.8%
Japan 6.0%
</TABLE>
<TABLE>
<S> <C> <C>
LARGEST EQUITY % OF TOTAL
HOLDINGS COUNTRY INVESTMENTS
--------------------------------------------------------------------------------
Merck & Co., Inc. United States 9.5%
Pfizer, Inc. United States 9.0%
Bristol-Myers Squibb Co. United States 5.7%
Lilly (Eli) & Co. United States 5.5%
Roche Holding AG Switzerland 5.3%
Johnson & Johnson United States 4.5%
American Home
Products Corp. United States 4.4%
Pharmacia Corp. United States 4.3%
Takeda Chemical
Industries Ltd. Japan 4.2%
Novartis AG Switzerland 3.6%
</TABLE>
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. Because the Fund's investments are concentrated in
the healthcare sector, the value of its shares, will be affected by factors
peculiar to that sector and may fluctuate more widely than that of a fund which
invests in a broad range of industries. The Fund invests in foreign securities
which are subject to special risks such as economic and political instability
and currrency fluctuation.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
5
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 99.6%
DENMARK - 2.1%
4,453 H. Lundbeck A/S $ 305,788
1,903 Novo Nordisk A/S(+) 403,091
------------
708,879
------------
FRANCE - 3.1%
11,043 Aventis S.A. 795,605
973 Genset S.A.(+) 48,411
4,100 Sanofi Synthelabo S.A. 215,460
-----------
1,059,476
-----------
GERMANY - 2.4%
1,900 Altana AG 228,554
3,100 Fresenius Medical Care AG 131,378
8,200 Schering AG 458,722
-----------
818,654
-----------
JAPAN - 6.0%
6,000 Dai Nippon Pharmaceutical Co. Ltd. 76,875
2,000 Daiichi Pharmaceutical Co. Ltd. 56,782
6,000 Fujisawa Pharmaceutical Co. Ltd. 188,479
9,000 Kaken Pharmaceutical Co. Ltd. 53,576
1,000 Taisho Pharmaceutical Co. Ltd. 28,757
22,000 Takeda Chemical Industries Ltd. 1,448,668
8,000 Welfide Corp. 57,514
3,000 Yamanouchi Pharmaceutical Co. Ltd. 135,727
-----------
2,046,378
-----------
NETHERLANDS - 0.5%
2,900 Jomed NV(+) 177,409
-----------
SWITZERLAND - 9.4%
215 Actelion Ltd.(+) 95,059
814 Novartis AG 1,234,513
200 Roche Holding AG 1,826,372
93 Serono S.A. Cl B 83,633
-----------
3,239,577
-----------
UNITED KINGDOM - 10.3%
21,000 AstraZeneca Group Plc 984,290
11,993 Celltech Group Plc(+) 238,571
24,000 Glaxo Wellcome Plc 691,390
41,801 Nycomed Amersham Plc 374,491
80,371 Smith & Nephew Plc 330,260
70,227 SmithKline Beecham Plc 907,536
-----------
3,526,538
-----------
SHARES/PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
UNITED STATES - 65.8%
10,100 Abbott Laboratories $ 533,406
1,200 Abgenix, Inc.(+) 94,650
10,900 Alza Corp.(+) 882,219
23,600 American Home Products Corp. 1,498,600
16,100 Amgen Inc.(+) 932,794
5,800 Becton Dickinson & Co. 194,300
32,000 Bristol-Myers Squibb Co. 1,950,000
1,700 Cardinal Health, Inc. 161,075
1,100 CIGNA Corp. 134,145
2,600 Forest Laboratories, Inc.(+) 344,500
1,800 Genentech, Inc.(+) 148,500
1,400 Guidant Corp.(+) 74,113
5,300 HCA - The Healthcare Co. 211,668
6,600 Human Genome Sciences, Inc.(+) 583,378
900 IDEC Pharmaceuticals Corp.(+) 176,513
3,900 Inhale Therapeutic Systems Inc.(+) 194,025
16,800 Johnson & Johnson 1,547,700
7,700 Ligand Pharmaceuticals Inc. Cl B(+) 114,538
21,300 Lilly (Eli) & Co. 1,903,687
2,800 MedImmune, Inc.(+) 183,050
18,800 Medtronic, Inc. 1,021,075
36,300 Merck & Co., Inc. 3,264,730
1,750 PE Corp.-PE Biosystems Group(+) 204,750
400 PE Corp.-Celera Genomics Group(+) 27,000
71,400 Pfizer, Inc. 3,083,588
26,600 Pharmacia Corp. 1,463,000
15,400 Schering-Plough Corp. 795,988
9,600 Tenet Healthcare Corp.(+) 377,400
3,300 Vertex Pharmaceuticals, Inc.(+) 307,261
2,400 Waters Corp.(+) 174,150
-----------
22,581,803
-----------
TOTAL COMMON STOCKS 34,158,714
-----------
(Cost $33,742,619)
SHORT-TERM INVESTMENTS - 0.4%
$150,000 U.S. Treasury Bills, 6.09%, 3/22/01(s)(y) 146,423
-----------
(Cost $146,504)
TOTAL INVESTMENT SECURITIES - 100.0% $34,305,137
===========
(Cost $33,889,123)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
6
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
NET UNREALIZED
CONTRACTS SETTLEMENT SETTLEMENT APPRECIATION
TO BUY DATE VALUE VALUE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4,475,000 EUR 12/15/2000 $ 3,887,165 $ 3,800,976 $ (86,189)
3,204,265 GBP 12/15/2000 4,673,004 4,657,260 (15,744)
56,158 GBP for
145,787 CHF 12/15/2000 81,430 81,624 194
55,162 GBP for
700,000 DKK 12/15/2000 79,850 80,175 325
287,290,725 JPY 12/15/2000 2,681,763 2,652,666 (29,097)
2,319,973 SEK 12/15/2000 239,000 232,397 (6,603)
-------------------------------------------------------------
$11,642,212 $11,505,098 $(137,114)
=============================================================
CONTRACTS SETTLEMENT SETTLEMENT APPRECIATION
TO SELL DATE VALUE VALUE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------
1,294,753 EUR 12/15/2000 $ 1,132,444 $ 1,099,738 $ 32,706
3,500,000 GBP 12/15/2000 5,103,575 5,087,098 16,477
281,226,264 JPY 12/15/2000 2,614,633 2,596,671 17,962
-------------------------------------------------------------
$ 8,850,652 $ 8,783,507 $ 67,145
=============================================================
</TABLE>
<TABLE>
<CAPTION>
FUTURES CONTRACTS
UNDERLYING FACE NET UNREALIZED
PURCHASED EXPIRATION DATE AMOUNT AT VALUE APPRECIATION
-----------------------------------------------
<S> <C> <C> <C>
3 S&P 500 Index December 2000 $1,080,150 $54,259
===============================================
</TABLE>
<TABLE>
<S> <C>
MARKET SECTORS % OF TOTAL
(UNAUDITED) INVESTMENTS
PHARMACEUTICALS 87.0%
HEALTH SERVICES & SYSTEMS 12.1%
INSURANCE 0.4%
CONSUMER CYCLICAL 0.1%
SHORT-TERM INVESTMENTS 0.4%
</TABLE>
CHF - Swiss Franc
DKK - Danish Krone
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
SEK - Swedish Krona
(s) Security is fully or partially segregated with custodian as collateral for
futures contracts
or with broker as initial margin for futures contracts.
(y) Yield to maturity
(+) Non-income producing security
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $33,889,123) $34,305,137
Cash 1,010,588
Foreign Currency at Value (Cost $680,549) 679,894
Receivable for Expense Reimbursements 84,189
Unrealized Appreciation of Forward Foreign Currency Contracts 67,664
Receivable for Shares of Beneficial Interest Sold 61,000
Variation Margin Receivable 21,750
Dividend and Interest Receivable 12,396
Prepaid Expenses and Other Assets 11,453
-----------
TOTAL ASSETS 36,254,071
===========
LIABILITIES
Payable for Investments Purchased 186,673
Unrealized Depreciation of Forward Foreign Currency Contracts 137,633
Advisory Fee Payable 34,869
Administrative Services Fee Payable 1,289
Accrued Expenses and Other Liabilities 84,838
------------
TOTAL LIABILITIES 445,302
------------
NET ASSETS
Applicable to 2,369,712 shares outstanding
(par value $0.001, unlimited shares authorized) $35,808,769
============
Net Asset Value, Offering and Redemption Price per Share $15.11
============
ANALYSIS OF NET ASSETS
Paid-in Capital $35,466,630
Undistributed Net Investment Income 68,181
Accumulated Net Realized Loss on Investments,
Futures and Foreign Currency Contracts
and Transactions (125,657)
Net Unrealized Appreciation on Investments,
Futures and Foreign Currency Contracts
and Translations 399,615
-------------
NET ASSETS $35,808,769
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE PERIOD SEPTEMBER 29, 2000 (COMMENCEMENT OF OPERATIONS)
THROUGH OCTOBER 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
INCOME
Dividend Income $ 13,081
Interest Income 397
---------
Investment Income 13,478
---------
EXPENSES
Professional Fees 49,412
Advisory Fee 34,869
Registration Fee 12,920
Printing Expenses 9,000
Shareholder Servicing Fee 6,974
Custody Fee 5,400
Transfer Agent Fees 3,100
Administrative Services Fee 1,289
Financial and Fund Accounting Services Fee 1,250
Trustees' Fees and Expenses 249
Fund Services Fee 38
Administration Fee 32
Miscellaneous 1,500
---------
Total Expenses 126,033
Less: Reimbursement of Expenses (84,189)
---------
Net Expenses 41,844
---------
NET INVESTMENT LOSS (28,366)
---------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON
Investment Transactions (89,360)
Futures Contracts (36,298)
Foreign Currency Contracts and Transactions 47,943
---------
Net Realized Loss (77,715)
----------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON
Investment Transactions 416,014
Futures Contracts 54,259
Foreign Currency Contracts and Translations (70,658)
-----------
Net Change in Unrealized Appreciation 399,615
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $293,534
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE PERIOD SEPTEMBER 29, 2000 (COMMENCEMENT OF OPERATIONS)
THROUGH OCTOBER 31, 2000
<TABLE>
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Loss $ ( 28,366)
Net Realized Loss on Investments, Futures and
Foreign Currency Contracts and Transactions (77,715)
Net Change in Unrealized Appreciation of Investments, Futures
and Foreign Currency Contracts and Translations 399,615
-------------
Net Increase in Net Assets Resulting from Operations 293,534
-------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 35,669,052
Cost of Shares of Beneficial Interest Redeemed (153,817)
-------------
Net Increase from Transactions in Shares of Beneficial Interest 35,515,235
-------------
Total Increase in Net Assets 35,808,769
-------------
NET ASSETS
Beginning of Period -
-------------
End of Period $35,808,769
=============
Undistributed Net Investment Income $68,181
=============
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Shares of Beneficial Interest Sold 2,380,043
Shares of Beneficial Interest Redeemed (10,331)
-------------
Net Increase in Shares of Beneficial Interest 2,369,712
=============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
THE PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 29, 2000
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 2000
---------------------
<S> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $15.00
---------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03
Net Realized and Unrealized Gain on Investments,
Futures and Foreign Currency
Contracts and Transactions 0.08
---------------------
Total From Investment Operations 0.11
---------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $15.11
=====================
RATIOS AND SUPPLEMENTAL DATA
Total Return 0.73%(a)
Net Assets, End of Period (in thousands) $35,809
Ratios to Average Net Assets
Net Expenses 1.50%(b)
Net Investment Income 1.02%(b)
Expenses Without Reimbursement 4.52%(b)
Portfolio Turnover 3%(a)
</TABLE>
(a) Not annualized
(b) Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION-- The J.P. Morgan Global Healthcare Fund (the "Fund") is a
series of J.P. Morgan Series Trust, a Massachusetts business trust (the
"Trust"). The Trust, which was organized on August 15, 1996, is registered under
the Investment Company Act of 1940, as amended, as a no-load, non-diversified,
open-end management investment company. The Fund's investment objective is to
provide high total return from a worldwide portfolio of equity securities in
the healthcare sector. The Trustees of the Trust have divided the beneficial
interests in the Fund into three classes of shares, Advisor, Institutional and
Select Shares. Currently, the Fund only offers Select Shares. The Fund commenced
operations on September 29, 2000. 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--Securities traded on principal securities exchanges are
valued at the last reported sales price, or mean of the latest bid and asked
prices when no last sales price is available. Securities traded over-the-counter
and certain foreign securities are valued at the quoted bid price from a market
maker or dealer. 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.
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 when 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 adopted by the Trustees.
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 as of the ex-dividend date or as of 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.
FUTURES CONTRACTS--The Fund may enter into futures contracts in order to
hedge existing portfolio securities, or securities the Fund intends to purchase,
against fluctuations in value caused by changes in prevailing market interest
rates or securities movements and to manage exposure to changing interest rates
and securities prices. The risks of entering into futures contracts include the
possibility that the change in value of the contract may not correlate with the
changes in value of the underlying securities. Upon entering into a futures
contract, the Fund is required to deposit either cash or securities in an amount
equal to a certain percentage of the contract value (initial margin). Subsequent
payments (variation margin) are made or received daily, in cash, by the Fund.
The variation margin is equal to the daily change in the contract value and is
recorded as unrealized gain or loss. The Fund will recognize a gain or loss when
the contract is closed or expires.
FOREIGN CURRENCY TRANSACTIONS--All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. Realized
and unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates and 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 from changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of securities during the period.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to manage the Fund's exposure to foreign
currency exchange fluctuations. The net U.S. dollar value of foreign currency
underlying all contractual commitments held by the Fund and the resulting
unrealized appreciation or depreciation are determined daily using prevailing
exchange rates. The Fund bears the risk of an unfavorable change in the foreign
currency exchange rate underlying the forward contract. Additionally, losses
may arise if the counterparties do not perform under the contract terms.
12
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
FOREIGN TAXES--The Fund may be subject to foreign taxes on income, gains on
investments or currency repatriation, a portion of which may be recoverable. The
Fund will accrue such taxes and recoveries as applicable, based upon their
current interpretation of tax rules and regulations that exist in the markets in
which they invest.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid annually. Distributions from net realized gains, if any, are paid
annually.
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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 1.25% of the Fund's
average daily net assets.
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 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 extra-ordinary items) of Select Shares at no more than 1.50% of the
average daily net assets of the Fund. This reimbursement arrangement can be
changed or terminated at any time after February 28, 2002 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 0.25% 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 Select 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 Select Shares.
13
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND
NOTES TO FINANCIAL STATEMENTS
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(Continued)
OCTOBER 31, 2000
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2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 Trust 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 (PGI) shown on the
Statement of Operations was $100.
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3. FEDERAL INCOME TAXES
As of October 31, 2000, accumulated net unrealized appreciation was
$416,014, based on the aggregate cost of investments for federal income tax
purposes of $33,889,123, which consisted of unrealized appreciation of
$1,506,577 and unrealized depreciation of $1,090,563.
For federal income tax purposes, the Fund had a capital loss carryforward as
of October 31, 2000, of approximately $71,398 which 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.
Income distributions and capital gain distributions, if any, are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatment of net operating losses, foreign currency and tax
allocation. Accordingly, these permanent differences in the character of income
and distributions between financials statements and tax basis have been
reclassified to paid-in-capital. During the period ended October 31, 2000 the
following reclassification was made: undistributed net investment income was
increased by $96,547, accumulated net realized loss was increased by $47,942,
and paid-in-capital was decreased by $48,605. The adjustments are primarily
attibutable to foreign currency losses. Net investment income, net realized
gains and net assets were not affected by this change.
--------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the year ended October 31, 2000, the Fund purchased $34,986,821 of
investment securities and sold $1,154,843 of investment securities other than
U.S. government securities and short-term investments. There were no purchases
or sales of U.S. government securities.
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5. 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% on the unused portion of the committed amount.
14
<PAGE>
J.P. MORGAN GLOBAL HEALTHCARE FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
6. CONCENTRATION OF CREDIT RISK
The Fund may have elements of risk not typically associated with investments
in the United States of America due to concentrated investments in a limited
number of countries or regions which may vary throughout the year. Such
concentrations may subject the Fund to additional risks resulting from political
or economic conditions in such countries or regions and the possible imposition
of adverse governmental laws or currency exchange restrictions could cause the
securities and their markets to be less liquid and their prices more volatile
than those of comparable U.S. securities.
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.
--------------------------------------------------------------------------------
7. 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.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustees and Shareholders of
J.P. Morgan Global Healthcare 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 Global Healthcare Fund
(one of the Funds comprising the J.P. Morgan Series Trust, hereafter referred to
as the "Fund") at October 31, 2000, and the results of its operations, the
changes in its net assets and the financial highlights for the period September
29, 2000 (commencement of operations) through October 31, 2000, 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 audit. We conducted our audit 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 audit, which included
confirmation of securities at October 31, 2000 by correspondence with the
custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 21, 2000
16
<PAGE>
[back cover]
J.P. MORGAN FUNDS
Federal Money Market Fund
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Prime Money Market Fund
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Emerging Markets Debt Fund
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Tax Aware Enhanced Income Fund:
Select Shares
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Tax Exempt Money Market Fund
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Short Term Bond Fund
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Bond Fund
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Global Strategic Income Fund
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Tax Exempt Bond Fund
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California Bond Fund:
Select Shares
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New York Tax Exempt Bond Fund
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Diversified Fund
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Disciplined Equity Fund
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Tax Aware U.S. Equity Fund: Select Shares
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U.S. Equity Fund
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U.S. Small Company Fund
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U.S. Small Company Opportunities Fund
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Emerging Markets Equity Fund
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European Equity Fund
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Global 50 Fund: Select Shares
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Global Healthcare Fund: Select Shares
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International Equity Fund
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International Opportunities Fund
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For more information on the J.P. Morgan Funds, call J.P. Morgan Funds
Services at (800) 521-5411.
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Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-ANN-23765 1000
