<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
June 1, 2000
Dear Shareholder,
For the six-month period ended April 30, 2000, the J.P. Morgan Tax Aware
Enhanced Income Fund: Institutional Shares returned 1.63%, while the J.P.
Morgan Tax Aware Enhanced Income Fund: Select Shares posted a 1.50% return.
Both outperformed the 1.29% return of the Lipper Short-Intermediate
Investment Grade Debt Funds Average. However, they underperformed their
benchmark, the Merrill Lynch 3-Month U.S. Treasury Bill Index, which posted
2.73% for the period.
As of April 30, 2000, the J.P. Morgan Tax Aware Enhanced Income Fund:
Institutional Shares' and the J.P. Morgan Tax Aware Enhanced Income Fund:
Select Shares' net assets were approximately $279.6 million and $28.5
million, respectively. For both share classes, dividends of approximately
$0.04 per share were paid from ordinary income of which approximately $0.03
is exempt from federal income tax. The NAV for both share classes declined
one cent to $1.98 over the six-month period.
This report includes a discussion with Richard Oswald, the portfolio manager
primarily responsible for the J.P. Morgan Tax Aware Enhanced Income Fund. In
this interview, Dick discusses the events in the fixed income markets,
portfolio performance, and what he sees on the horizon.
As chairman and president of Asset Management Services, we appreciate your
investment in the fund. If you have any comments or questions, please call
your Morgan representative or J.P. Morgan Funds Services at (800) 766-7722.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
--------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS...........1 FUND FACTS AND HIGHLIGHTS............6
FUND PERFORMANCE.....................2 FINANCIAL STATEMENTS.................8
PORTFOLIO MANAGER Q&A................4
--------------------------------------------------------------------------------
1
<PAGE>
Fund Performance
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS
---------------------------------------------------------------------
ONE THREE SIX ONE SINCE
AS OF APRIL 30, 2000 MONTH MONTHS MONTHS YEAR INCEPTION*
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Tax Aware Enhanced
Income Fund: Institutional Shares -0.16% 1.06% 1.63% 3.11% 3.11%
Merrill Lynch 3-Month
U.S. Treasury Bill Index** 0.47% 1.43% 2.73% 5.31% 5.31%
Lipper Short-Intermediate Investment
Grade Debt Funds Average*** -0.14% 1.54% 1.29% 1.68% 1.68%
AS OF MARCH 31, 2000
----------------------------------------------------------------------------------------------------------------------
J.P. Morgan Tax Aware Enhanced
Income Fund: Institutional Shares 0.87% 1.08% 2.15% N/A 3.28%
Merrill Lynch 3-Month
U.S. Treasury Bill Index** 0.52% 1.40% 2.66% N/A 4.82%
Lipper Short-Intermediate Investment
Grade Debt Funds Average*** 0.94% 1.31% 1.64% N/A 1.80%
</TABLE>
*THE INSTITUTIONAL SHARES COMMENCED OPERATIONS ON APRIL 16, 1999 AND HAVE
PROVIDED A TOTAL RETURN OF 3.12% FROM THAT DATE THROUGH APRIL 30, 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 CHARGES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
***DESCRIBES THE AVERAGE TOTAL RETURN FOR ALL FUNDS IN THE INDICATED LIPPER
CATEGORY, AS DEFINED BY LIPPER INC., AND DOES NOT TAKE INTO ACCOUNT
APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA.
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>
Fund Performance
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS
---------------------------------------------------------------------
ONE THREE SIX SINCE
AS OF APRIL 30,2000 MONTH MONTHS MONTHS INCEPTION*
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Tax Aware Enhanced
Income Fund: Select Shares -0.18% 0.99% 1.50% 2.86%
Merrill Lynch 3-Month
U.S. Treasury Bill Index** 0.47% 1.43% 2.73% 5.31%
Lipper Short-Intermediate Investment
Grade Debt Funds Average*** -0.14% 1.54% 1.29% 1.68%
AS OF MARCH 31, 2000
----------------------------------------------------------------------------------------------------------------------
J.P. Morgan Tax Aware Enhanced
Income Fund: Select Shares 0.85% 1.02% 2.03% 3.05%
Merrill Lynch 3-Month
U.S. Treasury Bill Index** 0.52% 1.40% 2.66% 4.82%
Lipper Short-Intermediate Investment
Grade Debt Funds Average*** 0.94% 1.31% 1.64% 1.80%
</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. ACCORDINGLY,
PERFORMANCE FOR THE FUND WOULD HAVE BEEN LOWER IF AN INVESTMENT HAD BEEN MADE
IN THE FUND DURING THE SAME TIME PERIOD. FOR THE PURPOSE OF COMPARISON,
"SINCE INCEPTION" RETURNS IN THE TABLES ABOVE ARE CALCULATED FROM APRIL 30,
1999. THE SELECT SHARES' TOTAL RETURN FROM COMMENCEMENT OF OPERATIONS ON
MAY 6, 1999 TO APRIL 30, 2000 IS 2.81%.
**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 CHARGES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
***DESCRIBES THE AVERAGE TOTAL RETURN FOR ALL FUNDS IN THE INDICATED LIPPER
CATEGORY, AS DEFINED BY LIPPER INC., AND DOES NOT TAKE INTO ACCOUNT
APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF FEES,
ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF CERTAIN
FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT
BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER.
3
<PAGE>
Portfolio Manager Q&A
[PHOTO]
The following is an interview with RICHARD OSWALD, vice president and member of
the portfolio management team for the J.P. Morgan Tax Aware Enhanced Income
Fund. Dick joined Morgan in October 1996 after eight years with CBS Inc., where
he served as corporate treasurer and president of the company's investment
subsidiary. Dick has also held financial positions with Primerica Corporation
and Price Waterhouse. He earned a B.A. from the University of Toronto and an
M.B.A. from the Rochester Institute of Technology, and is licensed as a C.P.A.
in New York State. This interview was conducted on May 12, 2000, and represents
Dick's views on that date.
WHAT HAS BEEN OCCURRING IN THE FIXED INCOME MARKETS DURING THE PAST SIX MONTHS?
RO: Interest rates have continued to take center stage. As the Federal Reserve
has moved to curtail the strong economy and protect against inflation by raising
short-term interest rates, all other debt markets have seen rates rise as well.
In the sectors in which the Tax Aware Enhanced Fund normally invests (roughly 1
to 5 year), rates have increased between 30 and 55 basis points in response to
the Fed actions during the fund's first half.
At the close of the calendar year, liquidity seemed to concern investors, fueled
in part by Y2K concerns. As a result, short-term rates in the taxable markets
dropped down to the 1%-2% range, and have since increased. During the same
period, municipal rates increased, declining during the first quarter of 2000.
The fund's ability to invest in both taxable and tax-exempt securities allowed
us to capitalize on the situation by taking advantage of market conditions. To
further maintain the fund's yield curve position and liquidity, we continued to
invest in floating-rate AAA debt when appropriate.
HOW HAS THE FUND PERFORMED IN THIS ENVIRONMENT?
RO: The Tax Aware Enhanced Fund has put in a solid performance during this
volatile six-month period. At April 30, 2000, it posted a one-cent decline in
net asset value to $1.98, compared with the NAV at October 31, 1999. This was
due primarily to the fund's defensive duration strategy, which kept the duration
target at approximately 0.75 years, lower than the traditional one-year mark.
The shorter duration target helps us cope with a changing interest rate picture,
but does make the fund more susceptible to short-term rate increases.
WHAT DO YOU SEE GOING FORWARD AND HOW WILL YOU MANAGE THE FUND AS A RESULT?
RO: The movement of interest rates will continue to be a significant factor
in the months to come. While the economy has shown some signs of slowing,
the Federal Reserve will continue to guard against inflation by raising
short-term rates when it deems it necessary.
The federal government's continued debt-reduction activities will further
reduce the supply of Treasury bonds, putting pressure on the shape of the
yield curve.
4
<PAGE>
Retail demand for bonds may remain strong. The volatility in the stock market
during the first quarter of 2000 heightened investor awareness of asset
allocation strategies and brought investors back into the municipals market.
We will continue to take a conservative approach. With the economy continuing
its strong performance, we anticipate more credit tightening from the Federal
Reserve and resulting higher interest rates. Consequently, we will stay with our
0.75-year duration target until we begin to see that the Fed is near the end of
its tightening cycle.
5
<PAGE>
Fund Facts
INVESTMENT OBJECTIVE
J.P. Morgan Tax Aware Enhanced Income Fund seeks to provide high current after
tax income consistent with principal preservation by investing in tax exempt and
taxable fixed income securities.
-------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
INSTITUTIONAL SHARES: 4/16/99
SELECT SHARES: 5/6/99
-------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/00
INSTITUTIONAL SHARES: $279,602,093
SELECT SHARES: $28,493,329
-------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/00
$308,095,422
-------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
MONTHLY
-------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/00
EXPENSE RATIOS
INSTITUTIONAL SHARES: 0.25%
SELECT SHARES: 0.50%
The current annualized expense ratios cover shareholders' expenses for custody,
tax reporting, and investment advisory and shareholder services, after
reimbursement. The fund is no-load and does not charge any sales or exchange
fees. There are no additional charges for buying, selling, or safekeeping fund
shares, or for wiring redemption proceeds from the fund.
Fund highlights
ALL DATA AS OF APRIL 30, 2000
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
-REVENUE BONDS 27.5%
-AUCTION RATE DEBT BONDS 23.0%
-GENERAL OBLIGATIONS 12.4%
-VARIABLE RATE DEMAND NOTES 9.0%
-INSURED 8.4%
-PRE-REFUNDED & ETM 6.6%
-CORPORATES 4.5%
-PRIVATE PLACEMENTS 3.8%
-ASSET-BACKET SECURITIES 1.7%
-RANS, TRANS, AND BANS 1.0%
-OTHER 0.1%
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND
ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND
SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE WORTH MORE OR LESS
THAN ORIGINAL COST.
References to specific securities are for illustrative purposes only and are
not intended to be, and should not be interpreted as, recommendations to
purchase or sell such securities. Opinions expressed herein and other fund
data presented are based on current market conditions and are subject to
change without notice. The fund's tax-aware strategies may reduce your
capital gains but will not eliminate them. The fund invests in foreign
securities, mortgage-related securities, interest rate swaps, futures
contracts, and options, which may make the fund more volatile.
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.
7
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (74.0%)
COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (1.6%)
$ 5,000 Peco Energy Transition
Trust, (Series 1999-A,
Class A3, due
03/01/06)............... Aaa/AAA 09/01/00(a) 6.020% $ 4,984,350
------------
CORPORATE OBLIGATIONS (1.6%)
5,000 Pepsico, Inc.,
(Series MTN, due
08/17/07)............... A1/A 08/17/00(a) 7.425 4,928,350
------------
MUNICIPAL SECURITIES (70.8%)
ALABAMA (2.6%)
8,000 Birmingham Special Care
Facilities, (Financing
Authority Revenue,
Baptist Medical Centers,
Series B, due
09/01/20)............... RB NR/NR 05/01/00(a) 5.830 8,000,000
------------
ARIZONA (0.3%)
1,000 Salt River Project,
(Arizona Agriculture
Improvement & Power
District Electric System
Revenue, due
01/01/19)............... RB Aa2/AA 01/01/02(a) 5.750 996,250
------------
ARKANSAS (0.6%)
2,000 Arkansas Student Loan
Authority Revenue,
(Series A, due
06/01/14)............... ARDB Aaa/NR 05/25/00(a) 4.148 2,000,000
------------
CALIFORNIA (0.3%)
1,000 Los Angeles County
Transmission Commission
(Sales Tax Revenue,
Series B, due
07/01/13), AMBAC
Insured................. RB Aaa/AAA 07/01/01(a) 6.500 1,040,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
COLORADO (1.1%)
$ 1,775 Colorado Springs
Utilities, (Series C,
due 11/15/21)........... RB Aa2/AA 11/15/01(a) 6.750 $ 1,846,000
1,560 Denver City & County
Airport, (Series C, due
11/15/22)............... Prerefunded AAA/BBB+ 11/15/02(a) 6.750 1,651,650
------------
TOTAL COLORADO........ 3,497,650
------------
DISTRICT OF COLUMBIA (1.7%)
5,000 District of Columbia,
(Series B, due
06/01/08), MBIA
Insured................. Prerefunded AAA/AAA 06/01/02(a) 6.300 5,231,250
------------
FLORIDA (1.5%)
2,495 Florida Mid-Bay Bridge
Authority, (Series A,
due 10/01/17)........... RB NR/NR 10/01/01(a) 7.500 2,641,581
2,000 Florida Mid-Bay Bridge
Authority, (Series B,
due 10/01/22)........... RB NR/NR 10/01/01(a) 8.500 2,145,000
------------
TOTAL FLORIDA......... 4,786,581
------------
HAWAII (1.6%)
4,750 Hawaii, (Series CE, due
06/01/07)............... Prerefunded AAA/A+ 06/01/03(a) 5.250 4,827,187
------------
ILLINIOS (1.0%)
2,930 Du Page Water Commission,
(due 03/01/03).......... GO Aaa/AAA 03/01/02(a) 6.150 3,017,900
------------
LOUISIANA (4.1%)
5,250 Louisiana Public
Facilities Authority,
(Student Loan
Series A-3, due
09/01/21), MBIA
insured................. ARDB Aaa/NR 05/31/00(a) 4.150 5,250,000
7,400 Louisiana Public
Facilities Authority,
(Student Loan,
Series A-1, due
02/01/29), MBIA
Insured................. ARDB Aaa/NR 05/29/00(a) 4.120 7,400,000
------------
TOTAL LOUISIANA....... 12,650,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
MASSACHUSETTS (0.7%)
$ 2,000 Massachusetts Health &
Educational Facilities
Authority, (Suffolk
University, Series A,
due 07/01/20)........... Prerefunded Baa2/NR 07/01/00(a) 8.125% $ 2,041,420
------------
MICHIGAN (1.0%)
3,000 Michigan Strategic Fund
Ltd., (Detroit Edison,
Series C, due
09/01/29)............... RB A3/A- 09/01/01(a) 4.730 3,000,000
------------
MISSISSIPPI (2.4%)
5,000 Mississippi Higher
Education Assistance
Corp., (Student Loan
Revenue Series B, due
09/01/09)............... ARDB Aaa/NR 05/09/00(a) 4.120 5,000,000
1,500 Mississippi Higher
Education Assistance
Corp., (Student Loan
Revenue, Series A, due
09/01/05)............... ARDB NR/NR 05/10/00(a) 4.100 1,500,000
1,000 Mississippi Higher
Education Assistance
Corp., (Student Loan
Revenue, Series A, due
09/01/16)............... ARDB Aaa/NR 05/31/00(a) 4.200 1,000,000
------------
TOTAL MISSISSIPPI..... 7,500,000
------------
MONTANA (0.5%)
1,500 Montana State Higher
Education Assistance
Corp., (Student Loan
Revenue, Series A, due
12/01/31)............... ARDB Aaa/NR 05/10/00(a) 4.140 1,500,000
------------
NEBRASKA (0.6%)
1,665 Omaha Airport Authority,
(due 01/01/14).......... Prerefunded A1/A 01/01/02(a) 8.375 1,787,794
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
NEVADA (3.6%)
$ 4,500 Clark County Industrial
Development Revenue,
(Nevada Power Co.
Project, Series C due
10/01/22), AMBAC
Insured................. RB Aaa/AAA 10/01/02(a) 7.200% $ 4,803,750
6,000 Clark County School
District, (Series A, due
06/01/09), MBIA
Insured................. Prerefunded Aaa/AAA 06/01/01(a) 7.000 6,216,180
------------
TOTAL NEVADA.......... 11,019,930
------------
NEW MEXICO (4.7%)
2,800 Albuqerque Retirement
Facilities, (La Vida
Liena Project,
Series A, due
02/01/23)............... Prerefunded NR/AAA 02/01/01(a) 8.850 3,150,000
4,000 New Mexico Educational
Assistance Foundation,
(Series A-1, due
11/01/09)............... ARDB Aaa/NR 05/16/00(a) 4.100 4,000,000
7,200 New Mexico Educational
Assistance Foundation,
(Student Loan Revenue,
Series B-1, due
11/01/25)............... ARDB Aaa/NR 05/30/00(a) 4.099 7,200,000
------------
TOTAL NEW MEXICO...... 14,350,000
------------
NEW YORK (2.8%)
5,500 New York, (Series H)...... GO A3/A- 08/01/03 5.000 5,479,375
2,000 New York, (Series J)...... GO A3/A- 05/15/01 5.000 2,011,960
1,000 Triborough Bridge & Tunnel
Authority, (Special
Obligation, Series A,
due 01/01/04) MBIA
Insured................. RB Aaa/AAA 01/01/01(a) 6.500 1,028,310
------------
TOTAL NEW YORK........ 8,519,645
------------
OHIO (2.5%)
2,300 Hilliard School District,
(due 12/01/14).......... Prerefunded Aa2/NR 12/01/01(a) 6.300 2,400,625
5,300 Student Loan Funding
Corp., (Student Loan
Revenue, Series B-1, due
06/01/25)............... ARDB Aaa/AAA 05/08/00(a) 4.150 5,300,000
------------
TOTAL OHIO............ 7,700,625
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
PENNSYLVANIA (4.4%)
$ 5,570 Lehigh County General
Purpose Authority,
(Wiley House, due
11/01/06)............... Prerefunded AAA/NR 11/01/01(a) 9.375% $ 6,043,450
5,000 Pennsylvania
Intergovernmental Co-op
Authority, (Special Tax
Revenue, City of
Philadelphia Funding
Program, due
06/15/02)............... ETM AAA/AAA 06/15/01(a) 6.000 5,087,500
2,200 Pennsylvania, (Third
Series, due 12/01/06)... GO Aa3/AA 12/01/02(a) 5.875 2,282,500
------------
TOTAL PENNSYLVANIA.... 13,413,450
------------
PUERTO RICO (0.8%)
2,250 Puerto Rico Commonwealth
Highway & Transportation
Authority, (Highway
Revenue, Series V, due
07/01/12)............... RB Baa1/A 07/01/02(a) 6.625 2,351,250
------------
SOUTH CAROLINA (1.3%)
3,900 South Carolina Education
Assistance Authority
Revenue, (Series A-1,
due 09/01/14)........... ARDB NR/AAA 05/31/00(a) 4.230 3,900,000
------------
SOUTH DAKOTA (5.0%)
3,700 Education Loans, (Student
Loan Revenue,
Series 1A, due
06/01/20)............... ARDB Aaa/NR 05/04/00(a) 4.100 3,700,000
6,700 Education Loans, (Student
Loan Revenue,
Series 1B, due
06/01/20)............... ARDB Aaa/NR 05/11/00(a) 4.099 6,700,000
4,000 Education Loans, (Student
Loan Revenue,
Series 1E, due
06/01/20)............... ARDB Aaa/NR 06/02/00(a) 4.210 4,000,000
1,040 South Dakota Building
Authority, (Lease
Revenue), AMBAC
Insured................. ETM Aaa/AAA 09/01/01 8.300 1,088,100
------------
TOTAL SOUTH DAKOTA.... 15,488,100
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
TENNESSEE (2.7%)
$ 8,000 Metropolitan Government
Nashville & Davidson
County, (Water & Sewer
Revenue, due 01/01/22),
AMBAC Insured........... Prerefunded Aaa/AAA 01/01/02(a) 6.075% $ 8,330,000
------------
TEXAS (10.6%)
5,000 Brazos River Authority
Pollution Control
Revenue, (Texas
Uitilities Electric Co.,
Series B, due
06/01/30)............... RB A3/BBB 06/19/00(a) 4.150 4,992,950
5,000 Brazos River Authority
Pollution Control
Revenue, (Texas
Utilities Electric Co.,
Series A)............... RB A3/BBB+ 04/01/33 5.000 5,002,050
4,000 Harris County, (Toll Road
Suburban Lien Revenue,
due 08/01/14)........... GO Aa1/AA 08/01/01(a) 6.750 4,180,000
4,175 Houston, (Series C, due
03/01/03)............... GO Aa3/AA- 03/01/02(a) 5.900 4,242,844
3,000 Matagorda County,
(District No. 1,
Pollution Control
Revenue, Central Power &
Light, Series A, due
05/01/30)............... RB Baa1/A- 11/01/01(a) 4.900 2,985,000
5,000 Matagorda County,
(District No. 1, Reliant
Energy, Inc., Series C,
due 05/01/29)........... RB Baa1/BBB 11/01/02(a) 5.200 4,950,000
3,290 Texas, (Public Finance
Authority, Series B, due
10/01/12)............... Prerefunded Aa1/AA 10/01/04(a) 5.750 3,380,475
3,000 University Of Texas
(Permanent University
Fund, Series A, due
07/01/13)............... RB Aaa/AAA 07/01/02(a) 6.250 3,056,250
------------
TOTAL TEXAS........... 32,789,569
------------
UTAH (2.0%)
6,000 Intermountain Power
Agency, (Power Supply
Revenue, Series B), MBIA
Insured................. RB Aaa/AAA 07/01/03 6.250 6,232,500
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
VERMONT (2.0%)
$ 6,100 Vermount Student
Assistance Corp.,
(Educational Loan
Revenue, Series I, due
12/15/15)............... ARDB Aaa/AAA 05/31/00(a) 4.290% $ 6,100,000
------------
VIRGINIA (1.0%)
3,000 Virginia Transportation
Board, (Transportation
Contract Revenue,
Series A6, Registered D
Shares, due 04/01/18)... RB Aa/NR 05/03/00(a) 5.250 3,000,000
------------
WASHINGTON (3.8%)
4,515 Chelan County Public
Utilities District No.
001, (Series 1987B, due
07/01/62)............... RB Aa2/AA 07/01/01(a) 7.550 4,644,806
4,000 Tacoma Electric System
Revenue, (due 01/02/15),
AMBAC Insured........... Prerefunded Aaa/AAA 01/01/01(a) 6.514 4,122,120
1,000 Washington Public Power
Supply System, (Nuclear
Project #3, Series B,
due 07/01/04)........... RB Aa1/AA- 07/01/00(a) 7.375 1,024,040
2,000 Washington,
(Series R92-B, due
09/01/09)............... GO Aa1/AA+ 09/01/01(a) 6.250 2,027,500
------------
TOTAL WASHINGTON...... 11,818,466
------------
WISCONSIN (3.6%)
5,000 Wisconsin Health &
Education Facilities
Authority Revenue,
(Beloit College Project,
Series 1999, due
12/31/50................ PP NR/NR 05/02/00(a) 4.447 5,000,000
6,250 Wisconsin Health &
Education Facilities
Authority Revenue,
(Carthage College
Project, Series 1999A,
due 05/01/29)........... PP NR/NR 05/01/02(a) 4.450 6,101,563
------------
TOTAL WISCONSIN....... 11,101,563
------------
TOTAL LONG TERM INVESTMENTS (COST $228,872,612)........................................ 227,903,830
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (20.3%)
CORPORATE OBLIGATIONS (2.6%)
$ 8,000 MCI Worldcom, Inc. (due
08/17/00) (144A)........ A3/A- 05/17/00(a) 6.270% $ 8,001,520
------------
MUNICIPAL SECURITIES (17.7%)
COLORADO (4.3%)
13,140 Denver City & County
Airport, (Series A16,
Registered D Shares, due
11/15/23), MBIA
Insured................. VRDN VMIGI/NR 05/03/00(a) 5.950 13,140,000
------------
DISTRICT OF COLUMBIA (3.2%)
10,000 District of Columbia,
(Series B).............. GO Baa3/BBB 06/01/00 4.250 9,990,600
------------
OHIO (0.2%)
500 Ohio Building Authority,
(Disalle Government
Center, Series A)....... RB Aa2/AA 10/01/00 5.000 501,275
------------
PUERTO RICO (3.9%)
7,015 Puerto Rico Commonwealth,
(Public Improvement).... GO Baa1/A 07/01/00 5.000 7,020,331
5,000 Puerto Rico Commonwealth,
(Series A-1, Registered
D Shares, due
07/30/00)............... VRDN VMIG1/NR 05/01/00(a) 6.100 5,000,000
------------
12,020,331
------------
SOUTH CAROLINA (1.6%)
5,000 South Carolina Jobs
Economic Development
Authority Revenue, (St.
Francis Hospital,
Series B, due
12/01/00)............... VRDN Baa1/NR 05/03/00(a) 6.630 4,994,500
------------
TEXAS (1.0%)
3,000 Texas, (Series A)......... TRAN MIG1/SP-1+ 08/31/00 4.500 3,000,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
--------------------- -------------------------- ----------- ------------------ ------------ -------- ------------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (0.3%)
$ 1,005 Whatcom County School
District, (No. 501
Bellingham), FSA
Insured................. GO Aaa/AAA 12/01/00 4.000% $ 1,001,725
------------
WEST VIRGINIA (1.6%)
5,000 West Virginia Hospital
Finance Authority
Revenue, (Charleston
Area, Series C)......... RB A2/NR 01/03/01 3.500 5,000,000
------------
WISCONSIN (1.6%)
5,000 De Pere Development
Revenue, (Box Packaging
Project, Series A, due
06/01/29), LOC-National
Westminster............. RB P-1/NR 12/01/00(a) 4.200 4,988,000
------------
OTHER (0.0%)
79 J.P. Morgan Institutional
Prime Money Market
Fund*................... 05/01/00 6.010(y) 79,175
------------
TOTAL SHORT-TERM INVESTMENTS (COST $62,762,329)............................................ 62,717,126
------------
TOTAL INVESTMENTS (COST $291,634,941) (94.3%).............................................. 290,620,956
OTHER ASSETS IN EXCESS OF LIABILITIES (5.7%)............................................... 17,474,466
------------
NET ASSETS (100.0%)........................................................................ $308,095,422
============
</TABLE>
------------------------------
Note: Based on the cost of the investments of $291,634,941, for federal income
tax purposes at April 30, 2000, the aggregate gross unrealized appreciation and
depreciation was $177,371 and $1,191,356 respectively, resulting in net
unrealized depreciation of investments of $1,013,985.
(a) The date listed under the heading maturity date represents an optional
tender date or the next interest rate reset date, which may vary. The actual
maturity date is indicated in the security description.
(y) Yield to Maturity
Abbreviations used in Schedule of Investments:
AMBAC - Ambac Indemnity Corp., ARDB - Auction Rate Debt Bond, ETM - Escrowed to
Maturity, FSA - Financial Securities Assurance, GO - General Obligation Bond,
LOC - Letter of Credit, MBIA - Municipal Bond Investors Assurance Group, MTN -
Medium Term Note, NR - Not Rated, PP - Private Placement, RB - Revenue Bond,
TRAN - Tax Revenue Anticipation Note, VRDN - Variable Rate Demand Note, 144A -
Securities restricted for resale to Qualified Institutional Buyers
*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.
16
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $291,634,941 ) $290,620,956
Cash 18,221,542
Interest Receivable 4,508,212
Receivable for Expense Reimbursements 139,503
Prepaid Trustees' Fees 1,884
Prepaid Expenses and Other Assets 291
------------
Total Assets 313,492,388
------------
LIABILITIES
Payable for Investments Purchased 5,047,869
Dividends Payable to Shareholders 209,405
Advisory Fee Payable 66,506
Shareholder Servicing Fee Payable 30,489
Administrative Services Fee Payable 12,886
Fund Services Fee Payable 236
Administration Fee Payable 193
Accrued Expenses 29,382
------------
Total Liabilities 5,396,966
------------
NET ASSETS $308,095,422
============
INSTITUTIONAL SHARES
Applicable to 140,899,957 shares outstanding
(par value $0.001, unlimited shares authorized) $279,602,093
============
Net Asset Value, Offering and Redemption Price
per Share $1.98
----
----
SELECT SHARES
Applicable to 14,355,978 shares outstanding
(par value $0.001, unlimited shares authorized) $ 28,493,329
============
Net Asset Value, Offering and Redemption Price
per Share $1.98
----
----
ANALYSIS OF NET ASSETS
Paid-in capital $310,141,798
Distributions in Excess of Net Investment Income (76)
Accumulated Net Realized Loss on Investments (1,032,315)
Net Unrealized Depreciation of Investments (1,013,985)
------------
Net Assets $308,095,422
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $8,153,995
EXPENSES
Advisory Fee $ 452,977
Shareholder Servicing Fee-Institutional Shares 166,054
Administrative Services Fee 89,248
Custodian Fees and Expenses 58,728
Shareholder Servicing Fee-Select Shares 37,817
Registration Fees 23,113
Fund Services Fee 3,113
Administrative Fee 1,278
Trustees' Fees and Expenses 803
Miscellaneous 52,212
---------
Total Expenses 885,343
Less: Reimbursement of Expenses (394,582)
---------
NET EXPENSES 490,761
----------
NET INVESTMENT INCOME 7,663,234
NET REALIZED LOSS ON INVESTMENTS (585,024)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 84,075
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $7,162,285
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 16, 1999
MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 2000 OPERATIONS) THROUGH
(UNAUDITED) OCTOBER 31, 1999
-------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 7,663,234 $ 6,010,638
Net Realized Loss on Investments (585,024) (447,291)
Net Change in Unrealized Appreciation
(Depreciation) of Investments 84,075 (1,098,060)
------------- ------------------
Net Increase in Net Assets Resulting from
Operations 7,162,285 4,465,287
------------- ------------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Institutional Shares (7,055,783) (5,639,686)
Select Shares (607,527) (370,952)
------------- ------------------
Total Distributions from Net Investment
Income (7,663,310) (6,010,638)
------------- ------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 169,655,948 442,652,632
Reinvestment of Dividends 5,905,142 4,545,226
Cost of Shares of Beneficial Interest Redeemed (249,510,421) (63,106,729)
------------- ------------------
Net Increase (Decrease) from Shareholder
Transactions (73,949,331) 384,091,129
------------- ------------------
Total Increase (Decrease) in Net Assets (74,450,356) 382,545,778
NET ASSETS
Beginning of Period 382,545,778 --
------------- ------------------
End of Period (including undistributed net
investment income of $0 and $0, respectively) $ 308,095,422 $ 382,545,778
============= ==================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES SELECT SHARES
------------------------------------- -------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE SIX APRIL 16, 1999 FOR THE SIX MAY 6, 1999
MONTHS ENDED (COMMENCEMENT OF MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 2000 OPERATIONS) THROUGH APRIL 30, 2000 OPERATIONS) THROUGH
(UNAUDITED) OCTOBER 31, 1999(A) (UNAUDITED) OCTOBER 31, 1999(B)
-------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.99 $ 2.00 $ 1.99 $ 2.00
-------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.04 0.04 0.04 0.04
Net Realized and Unrealized Loss
on Investments (0.01) (0.01) (0.01) (0.01)
-------- -------- ------- -------
Total from Investment Operations 0.03 0.03 0.03 0.03
-------- -------- ------- -------
LESS DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net Investment Income (0.04) (0.04) (0.04) (0.04)
-------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 1.98 $ 1.99 $ 1.98 $ 1.99
======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Total Return 1.63%(c) 1.57%(c) 1.50%(c) 1.29%(c)
Net Assets, End of Period (in
thousands) $279,602 $354,823 $28,493 $27,723
Ratios to Average Net Assets
Net Expenses 0.25%(d) 0.25%(d) 0.50%(d) 0.50%(d)
Net Investment Income 4.25%(d) 4.01%(d) 4.02%(d) 3.75%(d)
Expenses without Reimbursement 0.46%(d) 0.57%(d) 0.76%(d) 0.72%(d)
Portfolio Turnover 65%(c) 69%(c) 65%(c) 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) The figures have been adjusted to reflect a stock split that occurred on
July 27, 1999. (7.51256281 to 1)
(c) Not Annualized.
(d) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Tax Aware Enhanced Income Fund (the "fund") is a series of J.P.
Morgan Series Trust, a Massachusetts business trust (the "trust") which was
organized on August 15, 1996. The trust is registered under the Investment
Company Act of 1940, as amended, as 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 generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) The fund values securities that are listed on an exchange using prices
supplied daily by an independent pricing service that are based on the
last traded price on a national securities exchange or in the absence of
recorded trades, at the readily available mean of the bid and asked prices
on such exchange, if such exchange or market constitutes the broadest and
most representative market for the security. Securities listed on a
foreign exchange are valued at the last traded price or, in the absence of
recorded trades, at the readily available mean of the bid and asked prices
on such exchange available before the time when net assets are valued.
Independent pricing service procedures may also include the use of prices
based on yields or prices of securities of comparable quality, coupon,
maturity and type, indications as to values from dealers, operating data,
and general market conditions. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market
provided by a principal market maker or dealer. If prices are not supplied
by the fund's independent pricing service or principal market maker or
dealer, such securities are priced using fair values in accordance with
procedures adopted by the fund's Trustees. All short-term securities with
a remaining maturity of sixty days or less are valued using the amortized
cost method.
Because of the large number of municipal bond issues outstanding, varying
maturity dates, and the coupons and risk factors applicable to each
issuer's books, no readily available market quotations exist for most
municipal securities. The ability of the issuers of the debt securities
held by the portfolio to meet their obligations may be affected by
economic and political developments in a specific industry or region.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the
21
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
exchange on which they are traded closes and the time when the fund's net
assets are calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general
supervision of the fund's trustees.
The fund's custodian or designated subcustodians, as the case may be under
tri-party repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the fund. It
is the policy of the fund to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the fund has the
right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
b) The books and records of the fund are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations. Although the net assets of the fund are presented
at the exchange rates and market values prevailing at the end of the
period, the fund does not isolate the portion of the results of operations
arising as a result of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of securities
during the period.
c) Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d) The fund may enter into forward and spot foreign currency contracts to
protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the fund as
unrealized appreciation or depreciation of forward foreign currency
contract translations. At April 30, 2000, the fund had no open forward
foreign currency contracts.
e) A futures contract is an agreement to purchase/sell a specified quantity
of an underlying instrument at a specified future date or to make/receive
a cash payment based on the value of a securities index. The price at
which the purchase and sale will take place is fixed when the fund enters
into the contract. Upon entering into such a contract the fund is required
to pledge to the broker an amount of cash and/ or liquid securities equal
to the minimum "initial margin" requirements of the exchange. Pursuant to
the contract, the fund agrees to receive from, or pay to, the broker an
amount of cash equal to the daily
22
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
fluctuation in value of the contract. Such receipts or payments are known
as "variation margin" and are recorded by the fund as unrealized gains or
losses. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time when it was closed. The fund
invests in futures contracts for the purpose of hedging its existing fund
securities, or securities the fund intends to purchase, against
fluctuations in value caused by changes in prevailing market interest
rates or securities movements. The use of futures transactions involves
the risk of imperfect correlation in movements in the price of futures
contracts, interest rates and the underlying hedged assets, and the
possible inability of counterparties to meet the terms of their contracts.
There were no open futures contracts at April 30, 2000.
f) The fund may enter into commitments to buy and sell investments to settle
on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
g) The fund may engage in swap transactions, specifically interest rate,
currency, index and total return swaps. The fund will use these
transactions to preserve a return or spread on a particular investment or
portion of its investments, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the
price of securities the fund anticipates purchasing at a later date, or to
gain exposure to certain markets in the most economical way possible. An
interest rate swap is an agreement between two parties to exchange
interest payments on a specified amount ("the notional amount") for a
specified period. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange the notional amount as
well. Risks associated with swap transactions include the ability of
counterparties to meet the terms of their contracts, and the amount of the
fund's potential gain or loss on swap transactions is not subject to any
fixed limit.
h) Net investment income (other than shareholder servicing fees) and
unrealized and realized gains and losses are allocated daily to each class
of shares based upon the relative proportion of net assets of each class
at the beginning of the day.
i) Substantially all of the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholder's of net
realized capital gains, if any, are declared and paid annually.
j) The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
2. TRANSACTIONS WITH AFFILIATES
a) The fund has an Investment Advisory Agreement with J.P. Morgan Investment
Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company
of New York ("Morgan") and a wholly
23
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
owned subsidiary of J.P. Morgan and Company, Incorporated ("J.P. Morgan").
Under the terms of the Agreement, the fund pays Morgan at an annual rate
of 0.25% of the fund's average daily net assets. For the six months ended
April 30, 2000, this fee amounted to $452,977. The advisory fee above
includes $9,007 rebate from the J.P. Morgan Institutional Prime Money
Market Fund as a result of the Fund's investment in the J.P. Morgan
Institutional Prime Money Market Fund.
b) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the six
months ended April 30, 2000, the fee for these services amounted
to $1,278.
c) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan, under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
fund. Under the Services Agreement, the fund has agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated based on the aggregate average daily net assets of
the trust and certain other investment companies for which Morgan provides
similar services in accordance with the following annual schedule: 0.09%
on the first $7 billion of their aggregate average daily net assets and
0.04% of their aggregate average daily net assets in excess of $7 billion,
less the complex-wide fees payable to FDI. The portion of this charge
payable by the fund is determined by the proportionate share that its net
assets bear to the net assets of the trust and certain other investment
companies for which Morgan provides similar service. For the six months
ended April 30, 2000, the fee for these services amounted to $89,248.
In addition, J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, at no more
than annual 0.25% and 0.50% of the average daily net assets of the
Institutional Shares and Select Shares, respectively. This reimbursement
arrangement can be changed or terminated at any time at the option of J.P.
Morgan. For the six months ended April 30, 2000, Morgan has agreed to
reimburse Institutional Shares and Select Shares, $355,124 and $39,458,
respectively, for expenses under this agreement.
d) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services to fund shareholders. The Agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.10% and 0.25% for Institutional Shares
and Select Shares, respectively. For the six months ended April 30, 2000,
the fee for these services amounted to $166,054 and $37,817 for
Institutional Shares and Select Shares, respectively.
24
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the trust and Morgan is terminated, the fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
e) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of the Group. The
fund's allocated portion of Group's costs in performing its services
amounted to $3,113 for the six months ended April 30, 2000.
f) The fund made investments of cash balances in the J.P. Morgan
Institutional Prime Money Market Fund, pursuant to an exemptive order
received from the Securities and Exchange Commission. For the six months
ended April 30, 2000, the Fund earned $50,085 in aggregate from such
investments, which is included in interest income.
g) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which
they invest. The Trustees' Fees and Expenses shown in the financial
statements represents the fund's allocated portion of the total fees and
expenses. The trust's Chairman and Chief Executive Officer also serves as
Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $600.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 16, 1999
FOR THE SIX (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH
APRIL 30, 2000 OCTOBER 31, 1999
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Sold............... 74,165,444 $ 147,309,008 59,897,441 $409,818,197
Reinvestment of Dividends........................ 2,702,138 5,364,927 1,819,148 4,238,425
Shares Issued Due to Stock Split................. -- -- 134,183,876 --
Shares of Beneficial Interest Redeemed........... (114,603,204) (227,434,160) (17,264,886) (57,789,703)
------------ ------------- ----------- ------------
Net Increase (Decrease).......................... (37,735,622) $ (74,760,225) 178,635,579 $356,266,919
============ ============= =========== ============
</TABLE>
25
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
SELECT SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 6, 1999
FOR THE SIX (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH
APRIL 30, 2000 OCTOBER 31, 1999
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Sold............... 11,237,520 $ 22,346,940 6,301,706 $32,834,435
Reinvestment of Dividends........................ 272,154 540,215 126,790 306,800
Shares Issued Due to Stock Split................. -- -- 9,632,859 --
Shares of Beneficial Interest Redeemed........... (11,108,545) (22,076,261) (2,106,506) (5,317,025)
----------- ------------ ---------- -----------
Net Increase..................................... 401,129 $ 810,894 13,954,849 $27,824,210
=========== ============ ========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period
November 1, 1999 through April 30, 2000 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... -- 5,000,000
Corporation Obligations.......................... -- 866,799
Municipal Obligations............................ 185,640,856 236,743,253
------------ ------------
$185,640,856 $242,610,052
============ ============
</TABLE>
5. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 27, 1998, with unaffiliated lenders. The Agreement expired
on May 26, 1999, however, the fund as party to the Agreement has renewed the
Agreement and will continue its participation therein for an additional
364 days until May 23, 2000. The purpose of the Agreement is to provide another
alternative for settling large fund shareholder redemptions. Interest on any
such borrowings outstanding will approximate market rates. The funds pay a
commitment fee at an annual rate of 0.085% (0.065% prior to May 26, 1999) on the
unused portion of the committed amount; This is allocated to the funds in
accordance with procedures established by their respective trustees. There were
no outstanding borrowings pursuant to the Agreement as of April 30, 2000.
26
<PAGE>
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
IMSAR784_785
J.P. Morgan
Tax Aware
Enhanced
Income Fund
SEMIANNUAL REPORT
APRIL 30, 2000
