[front cover]
J.P. Morgan
Tax Aware U.S. Equity Fund
[jp morgan logo]
Annual Report
October 31, 2000
<PAGE>
Letter to the Shareholders
-----------------------------------------------------------------------------
December 1, 2000
Dear Shareholder,
We are pleased to report that the J.P. Morgan Tax Aware U.S. Equity Fund
outperformed its benchmark, the Standard & Poor's 500 Index, and peer group,
the Lipper Large-Cap Core Funds Average, for the 12 months ended October 31,
2000.The Fund provided a total return of 9.96% for the fiscal period, while
its benchmark and peer group had returns of 6.09%, and 9.71%,
respectively.
The net asset value of the Select Shares on October 31, 2000 was $20.51
per share, increasing from $18.73 after distributions of over $0.08 per share
in income over the fiscal period. The net asset value of the Institutional
Shares on October 31, 2000 was $14.73 per share, decreasing from $15.00 on
September 15, 2000 (commencement of operations). In keeping with the Fund's
tax-aware investment objective, there were no distributions from short-term or
long-term capital gains during the period.
This report includes an interview with Terry Banet, the lead portfolio
manager of the J.P. Morgan Tax-Aware U.S. Equity Fund. Terry discusses the
U.S. equity market in detail, and explains the factors that influenced fund
performance during the fiscal period. Terry 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 the
telephone numbers indicated on the back cover of this report.
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
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Letter to the Shareholders 1
Fund Performance 2
Portfolio Q&A 3
Fund Facts & Highlights 5
Financial Statements 6
1
<PAGE>
Fund Performance
-----------------------------------------------------------------------------
Examining performance
There are several ways to evaluate a mutual fund's historical performance.
One way is to look at the growth of a hypothetical investment. The chart at
right shows that $10,000 invested on December 31, 1996*, would have increased
to $20,679 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, or ten years
(or since
inception).
Growth of $10,000 since fund inception*
December 31, 1996-October 31, 2000
Lipper Large-Cap Core Funds Average $19,453
S&P 500 Index $20,380
J.P. Morgan Tax Aware U.S. Equity Fund: Select Shares $20,679
Performance
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------
One year Three years Since
Inception
As of October 31, 2000
<S> <C> <C> <C>
J.P. Morgan Tax Aware U.S. Equity Fund:
Select Shares* 9.96% 18.44% 20.87%
Institutional Shares** NA NA (1.80%)
S&P 500 Index*** 6.09% 17.60% 20.41%
Lipper Large-Cap Core Funds Average 9.71% 16.74% 18.44%
As of September 30, 2000
J.P. Morgan Tax Aware U.S. Equity Fund:
Select Shares* 15.85% 16.76% 21.33%
Institutional Shares** NA NA (2.00%)
S&P 500 Index*** 13.28% 16.44% 21.04%
Lipper Large-Cap Core Funds Average 17.80% 15.85% 19.41%
</TABLE>
* The Select Shares commenced operations on December 18, 1996, and has
provided an average annual total return of 21.00% from that date through
October 30, 2000. For the purpose of comparison, the "since inception"
returns are calculated from December 31, 1996, the first date when data
for the Fund's benchmark and its Lipper category average were available.
** The Institutional Shares commenced operations on September 15, 2000,
and "since inception" returns are calculated from that date.
*** S&P 500 Index is an unmanaged index that measures U.S. Stock market
performance using the average performance of 500 widely held stocks.
It does not include fees or operating expenses and is not available
for actual investment.
Past performance is no guarantee of future results. Fund returns are
net of fees, assume the reinvestment of distributions and reflect
reimbursement of certain fund expenses as described in the prospectus.
Had expenses not been subsidized, returns would have been lower.
Lipper Analytical Services Inc. is a leading source for mutual fund data.
2
<PAGE>
Portfolio Manager Q&A
-----------------------------------------------------------------------------
(photo of Terry E. Banet)
The following is an interview with Terry E. Banet, vice president and
portfolio manager for the J.P. Morgan Tax Aware U.S. Equity Fund since its
inception. Terry is a member of the Equity and Balanced Accounts group. She
joined Morgan in 1985, and was instrumental in developing Morgan's tax-aware
equity process. Terry earned an undergraduate degree in accounting from
Lehigh University, and an M.B.A. from Wharton. This interview was conducted
on November 15, 2000, and reflects Terry's views on that
date.
What had the greatest impact on the stock market during this reporting period?
There wasn't a single defining factor. Rather, a series of shocks led to
one of the more volatile years for stocks that we've experienced in some
time.
Among the more major shocks was the continuing run-up in interest rates by
the Federal Reserve as it tried to slow the economy. After raising rates by
100 basis points (1.00%) in 1999, the Fed continued to raise rates, by 75
basis points (0.75%), through May of 2000. This led investors to re-evaluate
their stock holdings against the backdrop of slower economic growth, both here
and
abroad.
The Fed's efforts began to have their desired effect during late spring
and into summer, as economic growth slowed demonstrably, and the rest of the
world began to follow suit. The rate increases impacted different industries
in different ways. For example, as rates moved up, certain finance stocks were
pummeled. Here, you had the issue of potentially higher loan losses going
forward, and slower lending growth in a higher rate environment.
The most prominent victim of the stock market sell-off, by far, was the
technology/Internet sector, where valuations generally had risen to excessive
levels during late 1999 and early 2000. Several of these companies, from small
to large, suffered extreme losses, which injected a great deal of volatility
into the marketplace.
Elsewhere, the healthcare sector whipsawed back and forth on rhetoric
arising from the presidential campaign about controlling drug and other
medical costs. And we saw much of the telecommunications sector decline when
investors realized that long distance revenues were falling much faster than
anticipated. On the plus side, the property and casualty insurance sector
performed above par, thanks to its finally getting increases in policy
pricing.
The other major issue that affected stock market performance over the past
year was the substantial decline in the euro against the dollar. This was true
for companies with significant foreign currency exposure. Several such
companies saw the value of their European sales and their equity decline
through much of the
year.
Is the euro story real, or, as a few have suggested, is it just being used
by companies to mask strategic mistakes?
The euro story is very real. With a weak currency, goods and services
priced in dollars become much more expensive to Europeans. To keep inflation
in check, the European Central Bank has raised interest rates and consequently
slowed growth. From the U.S. market's perspective, multinational companies
doing business in Europe would typically have earnings in euros. Translating
these earnings back to dollars, combined with slowing growth, has led to
disappointments in earnings.
How did you position the portfolio over this past year, and why?
We really didn't make many changes over the past year, as we still liked
most of our core holdings. Stocks that helped performance the most, for
example, have been held for more than a year. This said, we added some names,
such as Nortel and Citrix, that didn't live up to expectations, and held on to
a few stocks we shouldn't have.
Citrix Systems Inc., a supplier of application software and services, was
hurt initially by the very slow upgrade cycle to Windows 2000. Then it missed
its earnings and experienced a major management shake-out, sending its shares
down from a high of over $100 per share, to as low as the teens. It's gone up
a bit since then, but the damage was, and is,
significant.
Nortel Networks Corp. designs, develops, manufactures, markets, sells,
finances, installs and services data and telephone networks for carrier &
enterprise customers. It was doing fairly well until the end of this reporting
period. It hit its earnings target,
3
<PAGE>
Portfolio Manager Q&A
----------------------------------------------------------------------------
(Continued)
if barely, but investors, worried about an anticipated major reduction in
capital spending by telecoms, took their concerns out on the company's
stock.
One stock we continued to hold during the last year that detracted from
performance was MCI WorldCom. This former star performer lost a good deal
of its value because the merger with Sprint collapsed under the weight of
regulatory scrutiny, and its core businesses experienced slower growth than
expected.
What about stocks that outperformed?
Among the best stocks in the portfolio were Sun Microsystems, EMC, and
Forrest Labs, all of which were up in excess of 100%.
Sun benefited from having the best products in the server market, which
translated into a strong and growing market share. It added capacity over the
period and grew its business in all product lines.
I would note that in the tech area, we emphasized infrastructure and
storage stocks, rather than the latest, greatest dot-com to make it big. This
proved to be a good "bet" with Sun and an equally good one with EMC Corp., a
premier player in the mass storage market that experienced strong
growth.
Forrest Labs had a huge hit with an antidepressant drug. Management
demonstrated exceptional ability by, among other things, increasing and
improving the company's sales force ahead of the product's introduction.
By doing so, Forrest Labs enjoyed significant gains in market share over
the past
year.
Looking ahead to the next few months, what do you think is going to happen
With U.S. equities?
Continued volatility, to be sure. There are still some stocks that are
priced to have "perfect" earnings. Any deviation from these expectations
would likely send them sailing far south, at least by recent experience. We
also think that a company's valuation, earnings, and assets will have more
prominence for investors. If so, some of the formerly dreaded and beaten up
"old economy" stocks may return to
favor.
One of the best performing sectors of late has been the formerly neglected
utility sector. Power generation companies, for example, have done quite well
over the past year and promise to continue their rise into the near future.
As far as interest rates are concerned, growth has moderated, so we are
not looking for additional rate increases. By the same token, neither are we
expecting to see any substantial rate cuts, at least until inflation declines.
Another thing we are keeping a close watch on is the effect of Regulation
FD (Full Disclosure) on the ability of analysts and investors to predict
earnings. Hopefully, it won't result in a silent world, where investors have
to wait on final numbers before they learn where they
stand.
We are also paying very close attention to higher energy costs and how
they may filter through the economy. Beyond this, we are examining the
potential impact of an economic slowdown on earnings growth. And, in a similar
vein, we are evaluating the impact of lower capital expenditures on sectors
such as technology, and the sub-sectors that rely on them.
What changes to the portfolio might you make
over the near term?
Very careful changes, to be sure. We remain convinced that attention to
fundamentals and translating these fundamentals into effective stock picking
is the key to performing well. Barring new economic developments that would
necessitate change, we would not expect to materially alter these positions
in the months ahead.
We are seeking to bolster returns by modestly investing in smaller
companies that look interesting, but have yet to really prove themselves. If
they live up to expectations, we might selectively and opportunistically add
to these positions over time. This way, the fund can benefit on the upside as
the good companies move ahead, while our downside is limited by having
relatively modest positions in those companies that don't make the grade.
Anything else?
Yes. Since this is a tax-advantaged fund, I would note that through Oct.
31, 2000, we have applied our losses to aggressively offset any gains from
stocks that performed well. So, once again, there should not be a capital
gains distribution from the fund. This marks the fourth straight year without
a capital gains distribution, meaning that investors are keeping most of their
returns. It also means that our performance on an after-tax basis, relative to
the index and our peer group, looks even better.
4
<PAGE>
Fund Facts
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Investment Objective
J.P. Morgan Tax Aware U.S. Equity Fund seeks to provide high after-tax
total return from a portfolio of selected equity securities. The Fund is
designed for long-term taxable investors who are interested in minimizing
taxable distributions. The Fund invests primarily in common stocks and other
equity securities of large and medium sized U.S.
companies.
-----------------------------------------------------------------------------
Inception Date:
Institutional: 9/15/2000
Select: 12/18/1996
-----------------------------------------------------------------------------
Fund Net Assets as of 10/31/2000:
Institutional: $221
Select: $249,222,140
-----------------------------------------------------------------------------
Annual Expense Ratio:
Institutional: 0.70%
Select: 0.85%
-----------------------------------------------------------------------------
Income Dividend Payable Dates:
12/20/2000
-----------------------------------------------------------------------------
Capital Gain Dividend Payable Dates
(if applicable): 12/20/2000
Expense Ratio
The current annualized expense ratios cover 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; however, shares held for less than one year, prior to July
30, 2000, may have been subject to redemption fees. There are no additional
charges for buying, selling or safekeeping fund shares, or for wiring
redemption proceeds from the Fund. Fund redemptions worth over $250,000 are
redeemed in kind from the Fund. Shareholders owning more than 5% of the Fund's
outstanding shares should consult "Redemption of Shares" in the Statement of
Additional
Information.
Fund Highlights
-----------------------------------------------------------------------------
All data as of October 31, 2000
Portfolio Allocation
(As a percentage of total investment securities)
[data for pie chart below]
Finance 14.3%
Pharmaceuticals 12.5%
Computer Hardware 12.2%
Industrial Cyclical 11.7%
Software & Services 7.4%
Consumer Stable 6.7%
Energy 6.6%
Telecommunications 5.3%
Consumer Services 5.0%
Retail 4.1%
Semiconductors 4.0%
Utilities 2.8%
Insurance 2.5%
Short-Term Investments 2.4%
Capital Markets 1.7%
Consumer Cyclical 0.8%
<TABLE>
<S> <C>
Largest Equity % of Total
Holdings Investments
-----------------------------------------------------------------------------
Cisco Systems Inc. 4.2%
Sun Microsystems, Inc. 4.1%
Exxon Mobil Corp. 4.1%
General Electric Co. (U.S.) 3.4%
Tyco International Ltd. 3.3%
EMC Corp. (Mass.) 3.3%
Microsoft Corp. 3.0%
Pharmacia Corp. 2.1%
Intel Corp. 2.1%
Wal-Mart Stores, Inc. 2.0%
</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.
Return and share price will fluctuate and redemption value may be more or less
than original
cost.
Opinions expressed herein are based on current market conditions and are
subject to change without notice.
Call J.P. Morgan Funds Services at (800) 766-7722 (Institutional Shares) or
(800) 521-5411 (Select Shares) for a prospectus containing more complete
information about the Fund, including management fees and other expenses.
Please read the prospectus carefully before
investing.
5
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund - Schedule of Investments
-----------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<CAPTION>
Shares Value
-----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 97.6%
CAPITAL MARKETS - 1.7%
SECURITIES & ASSET MANAGEMENT - 1.7%
43,209 Goldman Sachs Group, Inc. (The) $ 4,312,798
-----------
COMPUTER HARDWARE - 12.2%
COMPUTER HARDWARE & BUSINESS MACHINES - 12.2%
195,200 Cisco Systems Inc.(+) 10,516,399
39,600 Compaq Computer Corp. 1,204,236
92,600 EMC Corp. (Mass.)(+) 8,247,188
92,900 Sun Microsystems, Inc.(+) 10,300,288
-----------
30,268,111
-----------
CONSUMER CYCLICAL - 0.8%
MOTOR VEHICLES & PARTS - 0.8%
35,200 Johnson Controls, Inc. 2,098,800
-----------
CONSUMER SERVICES - 5.0%
ENTERTAINMENT - 1.2%
50,900 Seagram Co. Ltd. (The)(i) 2,907,663
-----------
MEDIA - 3.8%
128,800 AT&T Corp. - Liberty Media Group Cl A(+) 2,318,400
49,500 Comcast Corp. Cl A(+) 2,017,125
76,700 News Corp. Ltd. (The) ADR(i) 3,298,100
25,100 Time Warner Inc. 1,905,341
-----------
9,538,966
-----------
12,446,629
-----------
CONSUMER STABLE - 6.7%
FOOD & BEVERAGE - 2.1%
43,100 Coca-Cola Co. (The) 2,602,163
51,700 PepsiCo, Inc. 2,504,219
-----------
5,106,382
-----------
HOME PRODUCTS - 3.0%
22,700 Clorox Co. 1,012,988
30,000 Estee Lauder Companies, Inc. 1,393,125
53,300 Gillette Co. 1,858,838
46,500 Procter & Gamble Co. (The) 3,321,843
-----------
7,586,794
-----------
TOBACCO - 1.6%
105,500 Philip Morris Companies Inc. 3,863,937
-----------
16,557,113
-----------
ENERGY - 6.6%
ENERGY RESERVES & PRODUCTION - 5.6%
115,236 Exxon Mobil Corp. 10,277,610
59,500 Royal Dutch Petroleum Co.
New York Shares ADR(i) 3,532,813
-----------
13,810,423
-----------
Shares Value
-----------------------------------------------------------------------------
OIL SERVICES - 1.0%
75,100 Baker Hughes Inc. $ 2,581,563
-----------
16,391,986
-----------
FINANCE - 14.3%
BANKS - 6.8%
38,802 Bank of America Corp. 1,864,921
39,500 Bank One Corp. 1,441,750
72,500 Citigroup Inc. 3,815,313
84,100 First Union Corp. 2,549,281
58,000 KeyCorp 1,431,875
117,100 U.S. Bancorp 2,832,356
60,100 Wells Fargo & Co. 2,783,381
----------
16,718,877
----------
FINANCIAL SERVICES - 6.2%
38,000 Associates First Capital Corp. 1,410,750
24,200 Fannie Mae 1,863,400
156,000 General Electric Co. (U.S.) 8,550,749
26,650 Marsh & McLennan Companies, Inc. 3,484,488
----------
15,309,387
----------
THRIFTS - 1.3%
73,700 Washington Mutual, Inc. 3,242,800
----------
35,271,064
----------
INDUSTRIAL CYCLICAL - 11.7%
CHEMICALS - 1.0%
84,500 Rohm and Haas Co. 2,540,281
----------
DEFENSE/AEROSPACE - 1.4%
65,900 Honeywell Inc. 3,546,244
----------
ELECTRICAL EQUIPMENT - 2.9%
4,351 Corvis Corp.(+) 285,534
23,100 Level 3 Communications, Inc.(+) 1,101,581
36,500 Lucent Technologies Inc. 850,906
25,200 Motorola, Inc. 628,425
64,794 Nortel Networks Corp. 2,948,127
30,000 Tellabs, Inc.(+) 1,498,125
----------
7,312,698
----------
FOREST PRODUCTS & PAPER -
0.7%
38,500 Temple-Inland Inc. 1,722,875
----------
HEAVY MACHINERY - 0.4%
28,300 Deere & Co. 1,041,794
----------
INDUSTRIAL PARTS - 3.4%
146,400 Tyco International Ltd.(i) 8,299,051
----------
MINING & METALS - 0.7%
62,704 Alcoa Inc. 1,798,821
----------
RAILROADS - 0.9%
46,000 Union Pacific Corp. 2,156,250
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
6
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund - Schedule of Investments
-----------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
Shares Value
-----------------------------------------------------------------------------
<C> <S> <C>
TRUCKING & SHIPPING & AIR FREIGHT - 0.3%
11,720 United Parcel Service, Inc. Cl B 711,990
----------
29,130,004
----------
INSURANCE - 2.5%
PROPERTY AND CASUALTY INSURANCE - 2.5%
34,500 Ambac Financial Group, Inc. 2,753,531
13,037 American International Group, Inc. 1,277,626
27,100 Xl Capital Ltd. Cl A(i) 2,083,313
----------
6,114,470
----------
PHARMACEUTICALS - 12.5%
DRUGS - 12.5%
33,400 Alza Corp.(+) 2,703,313
55,600 American Home Products Corp. 3,530,600
73,500 Bristol-Myers Squibb Co. 4,478,906
18,300 Forest Laboratories, Inc. Cl A(+) 2,424,750
45,400 Lilly (Eli) & Co. 4,057,625
10,000 Millennium Pharmaceuticals, Inc.(+) 725,625
21,200 PE Corp-PE Biosystems Group 2,480,400
81,350 Pfizer, Inc. 3,513,303
96,600 Pharmacia Corp. 5,313,000
35,900 Schering-Plough Corp. 1,855,581
----------
31,083,103
----------
RETAIL - 4.1%
CLOTHING STORES - 0.6%
54,200 Gap, Inc. (The) 1,399,038
----------
DEPARTMENT STORES - 2.9%
90,700 Target Corp. 2,505,588
108,600 Wal-Mart Stores, Inc. 4,927,724
----------
7,433,312
----------
SPECIALTY STORES - 0.6%
32,850 Home Depot, Inc. 1,412,550
----------
10,244,900
----------
SEMICONDUCTORS - 4.0%
SEMICONDUCTOR - 4.0%
116,700 Intel Corp. 5,251,500
9,900 JDS Uniphase Corp.(+) 806,231
81,100 Texas Instruments Inc. 3,978,969
----------
10,036,700
----------
SOFTWARE & SERVICES - 7.4%
COMPUTER SOFTWARE - 5.3%
32,000 International Business Machines Corp. 3,152,000
107,800 Microsoft Corp.(+) 7,424,724
29,129 NCR Corp.(+) 1,256,188
13,800 Siebel Systems, Inc.(+) 1,448,138
----------
13,281,050
----------
Shares Value
-----------------------------------------------------------------------------
INTERNET - 2.1%
43,600 America Online, Inc.(+) $ 2,198,748
69,100 E*trade Group Inc.(+) 1,006,269
58,700 Exodus Communications, Inc.(+) 1,970,119
-----------
5,175,136
-----------
18,456,186
-----------
TELECOMMUNICATIONS - 5.3%
TELEPHONE - 5.0%
39,350 AT&T Corp. 912,428
22,300 Global Crossing Ltd.(+) 526,838
79,300 SBC Communications Inc. 4,574,618
77,148 Verizon Communications 4,460,119
76,900 WorldCom, Inc.(+) 1,826,375
----------
12,300,378
----------
WIRELESS TELECOMMUNICATIONS - 0.3%
19,800 Sprint Corp. PCS(+) 754,875
----------
13,055,253
----------
UTILITIES - 2.8%
ELECTRICAL UTILITY - 2.8%
41,900 C P & L Energy Inc. 1,689,094
26,700 Dominion Resources Inc./Va 1,590,319
93,800 Entergy Corp. 3,593,712
-----------
6,873,125
-----------
TOTAL COMMON STOCKS 242,340,242
-----------
(Cost $194,700,251)
SHORT-TERM INVESTMENTS - 2.4%
6,054,215 J.P. Morgan Institutional
Prime Money Market Fund* 6,054,215
------------
(Cost $6,054,215)
TOTAL INVESTMENT SECURITIES - 100.0% $248,394,457
------------
(Cost $200,754,466)
</TABLE>
ADR - American Depositary Receipt
(i) Foreign security
* Money Market mutual fund registered under the Investment Company Act
of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc.
(+) Non-income producing security
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund
Statement of Assets and Liabilities
-----------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<S> <C>
Assets
Investments at Value (Cost $200,754,466) $248,394,457
Receivable for Shares of Beneficial Interest Sold 826,800
Dividend and Interest Receivable 236,270
Deferred Organization Expenses 10,137
Receivable for Expense Reimbursements 7,031
Prepaid Trustees' Fees and Expenses 429
Prepaid and Other Assets 1,381
------------
Total Assets 249,476,505
------------
Liabilities
Advisory Fee Payable 91,373
Shareholder Servicing Fee Payable 50,763
Administration Services Fee Payable 9,719
Fund Services Fee Payable 169
Accrued Expenses and Other Liabilities 102,120
-----------
Total Liabilities 254,144
-----------
Net Assets $249,222,361
============
Net Assets
Institutional Shares
Applicable to 15 shares outstanding (par value $0.001,
unlimited shares authorized) 221
============
Net Asset Value, Offering and Redemption
Price per Share $14.73
============
Select Shares
Applicable to 12,151,492 shares outstanding (par value
$0.001, unlimited shares authorized) 249,222,140
===========
Net Asset Value, Offering and Redemption Price per Share $20.51
===========
Analysis of Net Assets
Paid-in Capital $211,896,653
Undistributed Net Investment Income 97,599
Accumulated Net Realized Loss on Investments (10,411,882)
Net Unrealized Appreciation on Investments 47,639,991
------------
Net Assets $249,222,361
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund
Statement of Operations
-----------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
<TABLE>
<S> <C>
Investment Income
Income
Dividend Income (Net of Foreign Withholding
Tax of $25,271) $ 2,325,543
Interest Income 5,777
Dividend Income From Affiliated Investment
(Includes Reimbursement from Affiliate of $12,017) 373,789
-----------
Investment Income 2,705,109
-----------
Expenses
Advisory Fee 929,621
Shareholder Servicing Fee - Select Shares 516,456
Administrative Services Fee 100,469
Custody Fee 50,517
Transfer Agent Fees 41,095
Registration Fee 35,797
Professional Fee 33,777
Fund Accounting Expenses 16,791
Printing Expenses 16,485
Amortization of Organization Expenses 8,963
Fund Services Fee 3,206
Trustee Fees and Expenses 2,728
Administration Fee 1,353
Insurance Expenses 248
Miscellaneous 9,820
---------
Total Expenses 1,767,326
---------
Less: Reimbursement of Expenses (7,561)
---------
Net Expenses 1,759,765
---------
Net Investment Income 945,344
---------
Realized and Unrealized Gain (Loss)
Net Realized Loss on Investment Transactions (3,009,340)
-----------
Net Change in Unrealized Appreciation on
Investment Transactions 18,305,382
----------
Net Increase in Net Assets Resulting from Operations $16,241,386
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund
Statement of Changes in Net Assets
----------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31
<TABLE>
<CAPTION>
Increase in Net Assets 2000 1999
-------------------- --------------
<S> <C> <C>
From Operations
Net Investment Income $ 945,344 $ 719,299
Net Realized Gain (Loss) on Investments (3,009,340) 1,299,670
Net Change in Unrealized Appreciation of Investments 18,305,382 19,367,775
------------- -----------
Net Increase in Net Assets Resulting from Operations 16,241,386 21,386,744
-------------- -----------
Distributions to Shareholders from
From Net Investment Income:
Select Shares (861,047) (760,811)
------------- -------------
Transactions in Shares of Beneficial Interest
Proceeds from Shares of Beneficial Interest Sold 101,352,670 88,550,484
Reinvestments of Distributions 688,296 691,183
Cost of Shares of Beneficial Interest Redeemed (31,352,736) (23,768,181)
Service Charge 78,123 52,659
---------------- -------------
Net Increase from Transactions in Shares of
Beneficial Interest 70,766,353 65,526,145
--------------- --------------
Total Increase in Net Assets 86,146,692 86,152,078
--------------- ---------------
Net Assets
Beginning of Year 163,075,669 76,923,591
--------------- -------------
End of Year $249,222,361 $163,075,669
=============== ===============
Undistributed Net Investment Income $ 97,599 $ 13,302
================ ==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund
Financial Highlights
-----------------------------------------------------------------------------
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Institutional Select Shares
Shares
-------------------------------------------------------------------------------------------
For the Period For the Period
September 15, 2000 December 18, 1996
(commencement of (commencement of
operations) through For the Years Ended October 31 operations) through
October 31, 2000 2000 1999 1998 October 31, 1997
---------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share,
Beginning of Period $15.00 $18.73 $15.19 $12.57 $10.00
---------------- -------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.01(a) 0.09 0.10 0.08 0.06
Net Realized and Unrealized Gain (Loss)
on Investments (0.28) 1.77 3.55 2.65 2.52
---------------- -------------------------------------------------------------
Total from Investment Operations (0.27) 1.86 3.65 2.73 2.58
---------------- -------------------------------------------------------------
Less Distributions to Shareholders from
Net Investment Income - (0.08) (0.11) (0.11) (0.01)
--------------- -------------------------------------------------------------
Net Asset Value Per Share, End of Period $14.73 $20.51 $18.73 $15.19 $12.57
================= =============================================================
Ratios and Supplemental Data
Total Return (1.80)%(b) 9.96% 24.05% 21.81% 25.83%(b)
Net Assets, End of Period (in thousands) -(d) $249,222 $163,075 $76,924
$25,649
Ratios to Average Net Assets
Expenses 0.70%(c) 0.85% 0.85% 0.85% 0.85%(c)
Net Investment Income 0.51%(c) 0.46% 0.58% 0.63% 0.70%(c)
Expenses without Reimbursement 0.85%(c) 0.85% 0.90% 1.09% 2.16%(c)
Portfolio Turnover Rate 15% 15% 29% 44% 23%
</TABLE>
(a) Based on average number of shares outstanding throughout the period
(b) Not annualized
(c) Annualized
(d) Net Assets were $221 at October 31, 2000
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund
Notes to Financial Statements
-----------------------------------------------------------------------------
OCTOBER 31, 2000
-----------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
Organization--J.P. Morgan Tax Aware U.S. Equity Fund (the "Fund") is a
series of J.P. Morgan Series Trust, a Massachusetts business trust (the
"Trust"). The Trust, which was organized on August 15, 1996, is registered
under the Investment Company Act of 1940, as amended. The Fund is a no-load,
diversified, open-end management investment company. The Fund's investment
objective is to provide high after tax total return from a portfolio of
selected equity securities. The Trustees of the Trust have divided the
beneficial interests in the Fund into two classes of shares, Institutional
Shares and Select Shares. The Select Shares commenced operations on December
18, 1996 and the Institutional Shares commenced operations on September 15,
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.
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.
Organization Expenses--The Fund incurred organization expenses in the
amount of $47,567 which have been deferred and are being amortized on a
straight-line basis over a period not to exceed five years beginning with the
commencement of operations of the
Fund.
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 to a shareholder are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid quarterly. Distributions from net realized gains, if any, are paid
annually.
-----------------------------------------------------------------------------
2. Transactions with Affiliates
Advisory--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 0.45% 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.
Administrative Services--The Fund has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible for
certain aspects of the administration and operation of the Fund. Under the
Services Agreement, the Fund has agreed to pay Morgan a fee equal to its
allocable share of an annual complex-wide charge. This charge is calculated
based on the aggregate average daily net assets of the Fund 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
12
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund
Notes to Financial Statements
-----------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
-----------------------------------------------------------------------------
2. Transactions with Affiliates (continued)
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 0.85% of
the average daily net assets of the Select Shares through February 28, 2001,
and 0.70% of the daily net assets of the Institutional Shares through February
28, 2002.
Administration--The Fund has retained Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, to serve as the co-administrator and distributor for
the Fund. Under a Co-Administration Agreement between FDI and the Fund, FDI
provides administrative services necessary for the operations of the Fund,
furnishes office space and facilities required for conducting the business of
the Fund and pays the compensation of the Fund's officers affiliated with FDI.
The Fund has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The 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 and 0.10% of the average daily net assets of the Institutional
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 shares of the Select Shares.
Fund Services--The Fund has a Fund Services Agreement with Pierpont Group,
Inc. ("PGI") to assist the Trustees in exercising their overall supervisory
responsibilities for the Fund'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 Fund'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 $600.
-----------------------------------------------------------------------------
3. Federal Income Taxes
As of October 31, 2000, accumulated net unrealized appreciation was
$47,605,974, based on the aggregate cost of investments for federal income tax
purposes of $200,788,483, which consisted of unrealized appreciation of
$60,731,947 and unrealized depreciation of $13,125,973.
For federal income tax purposes, the Fund had a capital loss carryforward
as of October 31, 2000, of approximately $10,377,866 of which $81,365 expires
in 2005, $498,314 expires in 2006, $4,604,518 expires in 2007, and $5,193,669
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. Accordingly, these permanent differences in
the character of income and distributions between financial statements and tax
basis have been reclassified to paid-in-capital. During the year ended October
31, 2000 the following reclassification was made: paid-in-capital was
increased by $2,218,317 and accumulated undistributed net realized loss was
decreased by $2,218,317. This reclassification is the result of gains on
securities redeemed in kind that were treated as realized gains for financial
statement purposes, but were not recognized for tax purposes. Net investment
income, net realized gains and net assets were not affected by this
change.
13
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund
Notes to Financial Statements
-----------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
-----------------------------------------------------------------------------
4. Investment Transactions
During the year ended October 31, 2000, the Fund purchased $97,864,031 of
investment securities and sold $29,855,446 of investment securities other than
U.S. government securities and short-term investments. There were no purchases
or sales of U.S. government securities.
-----------------------------------------------------------------------------
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 Fund were as follows:
<TABLE>
<CAPTION>
For the Period September 15, 2000
(commencement of operations)
Institutional Shares through October 31, 2000
------------------------
Shares Amount
------------------------
<S> <C> <C>
Shares of Beneficial Interest Sold 15 $225
=========================
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended October 31
Select Shares 2000 1999
-----------------------------------------------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Sold 4,968,574 $101,352,445 4,957,907 $88,550,484
Reinvestment of Distributions 34,593 688,296 38,550 691,183
Shares of Beneficial Interest Redeemed (1,558,881) (31,352,736) (1,354,660) (23,768,181)
-----------------------------------------------------------------
Net Increase in Shares of Beneficial Interest 3,444,286 $ 70,688,005 3,641,797 $65,473,486
=================================================================
</TABLE>
From time to time, the Fund may have a concentration of several
shareholders holding a significant percentage of shares outstanding
Investment activities of these shareholders could have a material impact on the
Fund.
Redemptions may have been subject to service charges, retained by the
Fund, in accordance with the following schedule:
<TABLE>
<CAPTION>
Years Since Purchase Percentage of Cash
Proceeds
<S> <C>
Shares held for less than one year 1%
Shares held one year or longer None
</TABLE>
Effective July 30, 2000 redemptions are no longer subject to a service
charge.
-----------------------------------------------------------------------------
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% on the unused portion of the committed amount.
14
<PAGE>
J.P. Morgan Tax Aware U.S. Equity Fund
Notes to Financial Statements
-----------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
-----------------------------------------------------------------------------
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.
=============================================================================
Tax Information Notice (unaudited)
For corporate taxpayers 94.34% of the ordinary income distributions paid
during the fiscal year ended October 31, 2000 qualify for the corporate
dividends received deduction.
15
<PAGE>
Report of Independent Accountants
----------------------------------------------------------------------------
To the Trustees and Shareholders of
J.P. Morgan Tax Aware U.S. Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of J.P. Morgan Tax
Aware U.S. Equity Fund (one of the Funds comprising 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, the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for each of 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
16
<PAGE>
[back cover]
For more information on the J.P. Morgan
Funds, call J.P. Morgan Funds Services at:
Institutional Shares: (800) 766-7722
Select Shares: (800)
521-5411
---------------------------------------------------------------------------
Morgan Guaranty Trust Company PRSRT STD
500 Stanton Christiana Road U.S. POSTAGE PAID
Newark, Delaware 19713-2107 KANSAS CITY, MO
PERMIT NO. 4609
IN-ANN-23762 1000
