<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
December 1, 1999
Dear Shareholder,
1999 has been a volatile year for bonds and for the J.P. Morgan Tax Aware
Enhanced Income Fund. The J.P. Morgan Tax Aware Enhanced Income Fund:
Institutional Shares returned 1.46%, while the J.P. Morgan Tax Aware Enhanced
Income Fund: Select Shares posted a 1.34% return. Both compare favorably to the
0.38% 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 2.51% for the six months ended October
31, 1999.
As of October 31, 1999, 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 $355 million and $28 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. On July 27, both share classes had a share split. The split
lowered each net asset value to $1.99, which was intended to reduce overall
principal price volatility. The total amount of your investment did not change
as a result of the split.
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>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS............1 FUND FACTS AND HIGHLIGHTS.........6
FUND PERFORMANCE......................2 FINANCIAL STATEMENTS..............8
PORTFOLIO MANAGER Q&A.................4
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$5,000,000 (the minimum investment in the fund). The chart at right shows that
$5,000,000 invested on April 30, 1999*, would have grown to $5,073,173 on
October 31, 1999.
Another 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.
GROWTH OF $5,000,000 OVER 6 MONTHS
APRIL 30, 1999* - OCTOBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
JP MORGAN INSTITUTIONAL LIPPER SHORT-INTERMEDIATE
TAX AWARE ENHANCED INCOME FUND GRADE DEBT FUNDS AVERAGE BENCHMARK
PLOT POINTS PLOT POINTS PLOT POINTS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4/30/99 5,000,000 5,000,000 5,000,000
5/31/99 5,013,972 4,970,500 5,019,451
6/30/99 5,003,837 4,971,494 5,040,418
7/31/99 5,020,835 4,967,020 5,060,980
8/31/99 5,038,140 4,968,510 5,081,341
9/30/99 5,055,245 5,007,761 5,105,339
10/31/99 5,073,173.09 5,019,278.94 5,125,436.77
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS
--------------------------------------------------
ONE THREE SINCE
AS OF OCTOBER 31, 1999 MONTH MONTHS INCEPTION*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J.P. Morgan Tax Aware Enhanced
Income Fund: Institutional Shares 0.35% 1.04% 1.46%
Merrill Lynch 3 Month
U.S. Treasury Bill Index** 0.39% 1.27% 2.51%
Lipper Short-Intermediate Investment
Grade Debt Funds Average 0.23% 1.06% 0.38%
AS OF SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------------------
J.P. Morgan Tax Aware Enhanced
Income Fund: Institutional Shares 0.34% 1.03% 1.21%
Merrill Lynch 3 Month
U.S. Treasury Bill Index** 0.47% 1.29% 2.48%
Lipper Short-Intermediate Investment
Grade Debt Funds Average 0.83% 0.82% 0.51%
</TABLE>
*THE INSTITUTIONAL SHARES COMMENCED OPERATIONS ON APRIL 16, 1999 AND HAVE
PROVIDED A TOTAL RETURN OF 1.57% FROM THAT DATE THROUGH OCTOBER 31, 1999. 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.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF FEES,
ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT THE REIMBURSEMENT OF
CERTAIN EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC. IS
A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested on April 30, 1999*,
would have grown to $10,134 on October 31, 1999.
Another 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.
GROWTH OF $10,000 OVER 6 MONTHS
APRIL 30, 1999* - OCTOBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
JP MORGAN TAX AWARE
ENHANCED INCOME LIPPER SHORT-INTERMEDIATE
SELECT SHARES FUND GRADE DEBT FUNDS AVERAGE BENCHMARK
PLOT POINTS PLOT POINTS PLOT POINTS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4/30/99 10,000 10,000 10,000
5/31/99 10,026 9,941 10,039
6/30/99 10,004 9,943 10,081
7/31/99 10,036 9,934 10,122
8/31/99 10,068 9,937 10,163
9/30/99 10,100 10,016 10,211
10/31/99 10,134.17 10,038.56 10,250.87
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS
--------------------------------------------------
ONE THREE SINCE
AS OF OCTOBER 31, 1999 MONTH MONTHS INCEPTION*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J.P. Morgan Tax Aware Enhanced
Income Fund: Select Shares 0.33% 0.98% 1.34%
Merrill Lynch 3 Month
U.S. Treasury Bill Index** 0.39% 1.27% 2.51%
Lipper Short-Intermediate Investment
Grade Debt Funds Average 0.23% 1.06% 0.38%
AS OF SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------------------
J.P. Morgan Tax Aware Enhanced
Income Fund: Select Shares 0.32% 0.96% 1.11%
Merrill Lynch 3 Month
U.S. Treasury Bill Index** 0.47% 1.29% 2.48%
Lipper Short-Intermediate Investment
Grade Debt Funds Average 0.83% 0.82% 0.51%
</TABLE>
*THE SELECT SHARES COMMENCED OPERATIONS ON MAY 4, 1999. PERFORMANCE FROM
APRIL 16, 1999 TO MAY 4, 1999 REFLECTS THE HISTORICAL PERFORMANCE OF THE FUND'S
INSTITUTIONAL SHARES, WHICH HAVE A LOWER EXPENSE RATIO. FOR THE PURPOSE OF
COMPARISON, "SINCE INCEPTION" RETURNS IN THE TABLES ABOVE ARE CALCULATED FROM
APRIL 30, 1999. THE SELECT SHARES' TOTAL RETURN FROM COMMENCEMENT OF
OPERATIONS ON MAY 4, 1999 TO OCTOBER 31, 1999 IS 1.29%.
**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.
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. LIPPER ANALYTICAL SERVICES, INC.
IS A LEADING SOURCE FOR MUTUAL FUND DATA.
3
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The following is an interview with RICHARD OSWALD, vice president, who is
responsible for managing the J.P. Morgan Tax Aware Enhanced Income Fund. Dick
joined Morgan in October 1996 after eight years with CBS Inc., where he served
as corporate treasurer and president of the company's investment subsidiary.
Dick has also held financial positions with Primerica Corporation and Price
Waterhouse. He earned a B.A. from the University of Toronto and an M.B.A. from
the Rochester Institute of Technology, and is licensed as a C.P.A. in New York
State. This interview was conducted on November 5, 1999, and represents Dick's
views on that date.
THE FUND INVESTS IN BOTH TAX-EXEMPT AND SHORT-TERM TAXABLE SECURITIES, HOW DID
THOSE MARKETS FAIR SINCE THE FUND'S INCEPTION?
RO: The past year has been a volatile one for the financial markets and has kept
the U.S. Federal Reserve on its toes. The crises that plagued the global economy
from August through October last year prompted the Fed to act three times in the
last four months of 1998, lowering the federal funds rate 75 basis points to
4.75%. The ensuing pace of global recovery surprised many market participants,
but the Fed's actions served its purposes: keeping the global economy on an even
keel and promoting growth within the U.S. economy. The Fed then found itself
with an economy growing above trend albeit with benign inflation and subdued
wage pressures. In an effort to slow growth and create a "soft landing" the Fed
raised rates twice (in June and August), bringing the Fed Funds rate back to
5.25%.
At the same time that the Fed is tightening monetary policy, a liquidity crunch
is developing. Market makers, leery of taking risks following last fall's
crises, have dramatically reduced their inventories. In addition, there is a
general undercurrent of "what if Y2K really is a problem" that has both
investors and issuers heading for the sidelines for the remainder of the year.
Also - and this is a longer-term trend - because of the budget surplus, the
Treasury has been able to reduce issuance.
Fed activity affected the tax-exempt markets as well, but not as strongly as is
typical. At the end of April, short-term tax-exempt interest rates spiked 100
basis points, as individuals used money from their money market funds to pay
taxes. This seasonal affect reversed in May and short-term interest rates
returned to "normal" levels. Although shorter-term rates tend to be sensitive to
rate movements, they did not track the Fed's 50 basis point increase. Actually,
short-term municipal rates have not kept pace with Fed activity for some time
now: reduced supply in the second half of the year and greater demand for
floating rate notes kept short-term rates lower than they normally would be. At
the same time, however, in the 1- to 5-year sector rates rose 75 to 80 basis
points.
4
<PAGE>
HOW DID THE FUND PERFORM OVER THAT TIME?
RO: For the most part the fund has performed very well and met our expectations.
In June, however, the net asset value of the fund fell by $0.01 which had a 0.5%
negative effect on performance. During April, we kept exposure to tax-exempts
high because of the attractive short-term yields. As rates came back down in
May, we gradually moved out of short-term municipals, pushing duration out
toward our 1-year target to capture additional yield. The fund's longer average
duration hurt us in June as longer-term rates rose in anticipation of the Fed's
0.25% increase in the Fed Funds rate. However, as more assets came into the
fund, we let duration drift a bit shorter due to concerns that the 2- to 5-years
rates would continue to rise. As short-term rates fell in May and June, hitting
periodic lows, we also began to add cheaper taxable money market securities,
which had higher relative yields.
WHAT DO YOU SEE AHEAD FOR THESE MARKETS? HOW WILL YOU POSITION THE FUND AS A
RESULT?
RO: The Fed is caught in an interesting position: it has to provide liquidity at
a time when it must also raise interest rates to dampen growth. The Fed will be
adding liquidity through a currency facility, a bank loan facility (through the
discount loan window), and a temporarily expanded repo facility. In addition to
the accommodative actions of the Fed, the Treasury is issuing cash management
bills over the year-end and Fannie Mae has instituted weekly 3- and 6-month
auctions. At this point, we anticipate demand to outstrip supply, driving down
the yields on these securities. We still expect the Fed to raise rates at least
one more time in the next few months. While wage pressures may still be in
check, the size of the current account deficit and the weakening dollar, and, of
course, the continued strength of the economy, are concerns for the Fed.
The fund is currently invested in about 90% in municipal bonds and 10% taxable
securities. We have been buying A2/P2 commercial paper, capitalizing on the
attractive yield levels. Because we remain cautious about interest rates, we
will keep duration around three-quarters of a year, slightly under our target.
We will selectively and opportunistically buy longer duration debt. Though we do
not anticipate any major problems and are not making any significant changes to
the portfolio ahead of Y2K, we will maintain a high degree of liquidity over
year-end to handle cashflows or take advantage of investment opportunities.
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 10/31/99
INSTITUTIONAL SHARES: $354,823,191
SELECT SHARES: $27,722,587
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/99
$382,545,778
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/99
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 OCTOBER 31, 1999
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - AUCTION RATE DEBT BONDS 39.6%
- - PRE-REFUNDED & ETM 15.4%
- - GENERAL OBLIGATION 9.9%
- - REVENUE BONDS 9.0%
- - VARIABLE RATE DEMAND NOTES 6.5%
- - TAXABLE MUNICIPALS 4.0%
- - CORPORATE OBLIGATIONS 3.9%
- - PRIVATE PLACEMENTS 2.9%
- - ASSET-BACKED SECURITIES 3.3%
INSURED 3.3%
- - COMMERCIAL PAPER 1.3%
- - U.S. TREASURIES 0.1%
RANS, TRANS, AND BANS 0.8%
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.
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.
7
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (79.4%)
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (3.3%)
$ 5,000 Metris Master Trust,
(Series 1996-1, Class B).............. A2/A 02/20/02 6.800% $ 5,001,550
5,000 Peco Energy Transition Trust,
(Series 1999-A, Class A3)............. Aaa/AAA 03/01/06 6.020 4,959,350
2,618 The Money Store Home Equity Trust,
(Series 1996-D,
Class A5, Sequential Payer)........... Aaa/NR 03/15/18 6.670 2,613,747
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES
(COST $12,636,754)....................................................................... 12,574,647
------------
CORPORATE OBLIGATIONS (1.3%)
5,000 Pepsico, Inc., (Series MTN, due
08/17/07) (cost $5,000,000)........... A1/A 02/17/00(a) 7.425 5,010,500
------------
MUNICIPAL SECURITIES (74.5%)
ALABAMA (1.3%)
5,000 Birmingham Special Care Facilities,
(Financing Authority Revenue, Baptist
Medical Centers, Series C, due
06/01/14)............................. ARDB NR/NR 11/01/99(a) 6.475 5,000,000
------------
ARIZONA (0.3%)
1,000 Salt River Project, (Arizona Agriculture
Import & Power District Electric
System Revenue, due 01/01/19)......... RB Aa2/AA 01/01/02(a) 5.750 1,000,310
------------
ARKANSAS (2.7%)
5,900 Arkansas Student Loan Authority Revenue,
(Series A, due 06/01/09).............. ARDB Aaa/NR 11/12/99(a) 3.385 5,900,000
4,450 Arkansas Student Loan Authority Revenue,
(Series A, due 06/01/14).............. ARDB Aaa/NR 12/02/99(a) 3.900 4,450,000
------------
TOTAL ARKANSAS...................... 10,350,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (2.6%)
$ 2,000 San Diego Industrial Development
Revenue, (due 09/01/18)............... ARDB Aaa/AAA 11/08/99(a) 4.150% $ 2,000,000
8,000 Student Education Loan Marketing Corp.,
(Student Loan Revenue,
Series III-C-1, due 07/01/31)......... ARDB A2/NR 11/26/99(a) 4.000 8,000,000
------------
TOTAL CALIFORNIA.................... 10,000,000
------------
COLORADO (0.4%)
1,560 Denver City & County Airport Revenue,
(Series C, due 11/15/22).............. Prerefunded AAA/BBB+ 11/15/02(a) 6.750 1,682,476
------------
GEORGIA (0.7%)
2,500 Fulton De Kalb Hospital Authority
Revenue, (Grady Memorial Hospital).... ETM Aaa/AAA 01/01/01(a) 6.300 2,559,575
------------
HAWAII (1.3%)
4,750 Hawaii, (Series CE, due 06/01/07)....... Prerefunded AAA/A+ 06/01/03(a) 5.250 4,892,547
------------
ILLINOIS (3.5%)
2,930 Du Page Water Common, (due 03/01/03).... GO Aaa/AAA 03/01/02(a) 6.150 3,067,505
10,000 Illinois Development Financing Authority
Revenue, (Series A, due 02/01/15)..... Prerefunded Baa2/NR 02/01/00(a) 8.500 10,306,200
150 Illinois Health Facilities Authority
Revenue, (Rockford Memorial Hospital
Group, Callable, due 08/15/24), AMBAC
Insured............................... ARDB Aaa/AAA 11/24/99(a) 3.800 150,000
------------
TOTAL ILLINOIS...................... 13,523,705
------------
IOWA (0.8%)
3,000 Polk County Revenue, (Health Facilities,
Mercy Health Center, due 11/01/15),
MBIA Insured.......................... Prerefunded Aaa/AAA 11/01/01(a) 6.750 3,171,330
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
LOUISIANA (4.6%)
$10,000 Louisiana Public Facilities Authority,
(Student Loan Revenue, Series A-1, due
02/01/29), MBIA Insured............... ARDB Aaa/NR 12/03/99(a) 4.200% $ 10,000,000
7,750 Louisiana Public Facilities Authority,
(Student Loan Revenue, Series A-3, due
09/01/21), MBIA Insured............... ARDB Aaa/NR 11/03/99(a) 3.970 7,750,000
------------
TOTAL LOUISIANA..................... 17,750,000
------------
MICHIGAN (0.8%)
3,000 Michigan Strategic Fund Ltd., (Detroit
Edison, Series C, due 09/01/29)....... RB A3/A- 09/01/01(a) 4.730 3,003,870
------------
MISSISSIPPI (3.9%)
3,000 Mississippi Higher Education Assistance
Corp., (Student Loan Revenue,
Series B, due 09/01/04)............... ARDB Aaa/NR 11/24/99(a) 3.800 3,000,000
4,000 Mississippi Higher Education Assistance
Corp., (Student Loan Revenue,
Series A, due 09/01/05)............... ARDB NR NR 11/17/99(a) 3.800 4,000,000
1,500 Mississippi Higher Education Assistance
Corp., (Student Loan Revenue,
Series A, due 09/01/16)............... ARDB Aaa/NR 11/03/99(a) 3.970 1,500,000
5,300 Mississippi Higher Education Assistance
Corp., (Student Loan Revenue,
Series B, due 09/01/09)............... ARDB Aaa/NR 11/16/99(a) 3.800 5,300,000
1,000 Mississippi Higher Education Assistance
Corp., (Student Loan Revenue,
Series B, due 09/01/33)............... ARDB Aaa/NR 11/30/99(a) 3.849 1,000,000
------------
TOTAL MISSISSIPPI................... 14,800,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
MONTANA (3.1%)
$ 9,700 Montana State Higher Education Student
Assistance Corp., (Student Loan
Revenue, Series A, due 12/01/15)...... ARDB Aaa/NR 11/29/99(a) 3.800% $ 9,700,000
2,000 Montana State Higher Education Student
Assistance Corp., (Student Loan
Revenue, Series A, due 12/01/31)...... ARDB Aaa/NR 11/17/99(a) 3.800 2,000,000
------------
TOTAL MONTANA....................... 11,700,000
------------
NEBRASKA (1.0%)
2,050 Nebraska Investment Financial Authority
Hospital Revenue, (Bishop Clarkson
Memorial Hopsital, due 12/08/16), MBIA
Insured............................... ARDB Aaa/AAA 01/22/99(a) 3.750 2,050,000
1,665 Omaha Airport Authority, (due
01/01/14)............................. Prerefunded A1/A 01/01/02(a) 8.375 1,827,637
------------
TOTAL NEBRASKA...................... 3,877,637
------------
NEW MEXICO (5.5%)
5,000 Chaves County Hospital Revenue, (Eastern
New Mexico Medical Center Project, due
12/01/22)............................. Prerefunded AAA/NR 12/01/02(a) 7.250 5,490,200
7,000 New Mexico Educational Assistance
Foundation, (Student Loan Revenue,
Series A-1, due 11/01/09)............. ARDB Aaa/NR 11/23/99(a) 3.750 7,000,000
8,500 New Mexico Educational Assistance
Foundation, (Student Loan Revenue,
Series B-1, due 11/01/25)............. ARDB Aaa/NR 11/02/99(a) 3.950 8,500,000
------------
TOTAL NEW MEXICO.................... 20,990,200
------------
NEW YORK (2.0%)
5,500 New York, (Series H).................... GO A3/A- 08/01/03 5.000 5,549,995
2,000 New York, (Series J).................... GO A3/A- 05/15/01 5.000 2,017,860
------------
TOTAL NEW YORK...................... 7,567,855
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
OHIO (2.4%)
$ 5,000 Student Loan Funding Corp., (Student
Loan Revenue, Series A-1, due
12/01/04)............................. ARDB AAA/NR 12/03/99(a) 4.000% $ 5,000,000
1,000 Student Loan Funding Corp., (Student
Loan Revenue, Series A-5, due
09/01/47)............................. ARDB AAA/NR 11/04/99(a) 4.000 1,000,000
3,300 Student Loan Funding Corp., (Student
Loan Revenue, Series B-1, due
06/01/25)............................. ARDB AAA/AAA 11/15/99(a) 3.740 3,300,000
------------
TOTAL OHIO.......................... 9,300,000
------------
OKLAHOMA (0.6%)
2,500 Oklahoma Student Loan Authority,
(Student Loan Revenue, Series A-1, due
09/01/20)............................. ARDB Aaa/NR 11/12/99(a) 3.800 2,500,000
------------
PENNSYLVANIA (0.6%)
2,200 Pennsylvania, (Third Series, due
12/01/06)............................. GO Aa3/AA 12/01/02(a) 5.875 2,303,708
------------
PUERTO RICO (0.6%)
2,250 Puerto Rico Commonwealth Highway &
Transportation Authority, (Highway
Revenue, Series 1, due 07/01/12)...... RB Baa1/A 07/01/02(a) 6.625 2,378,677
------------
RHODE ISLAND (0.8%)
3,000 Rhode Island Student Loan Authority,
(Student Loan Revenue, Series 1, due
12/01/30), AMBAC Insured.............. ARDB Aaa/AAA 11/24/99(a) 3.800 3,000,000
------------
SOUTH DAKOTA (4.2%)
3,700 Education Loans, Inc., (Student Loan
Revenue, Series 1A, due 06/01/20)..... ARDB Aaa/NR 11/12/99(a) 3.850 3,700,000
5,000 Education Loans, Inc., (Student Loan
Revenue, Series 1B, due 06/01/20)..... ARDB Aaa/NR 11/18/99(a) 3.800 5,000,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
SOUTH DAKOTA (CONTINUED)
$ 4,200 Education Loans, Inc., (Student Loan
Revenue, Series 1C, due 06/01/20)..... ARDB Aaa/NR 11/26/99(a) 3.700% $ 4,200,000
2,000 Education Loans, Inc., (Student Loan
Revenue, Series 1E, due 06/01/20)..... ARDB Aaa/NR 11/04/99(a) 3.950 2,000,000
1,040 South Dakota Building Authority Revenue,
(Lease Revenue), AMBAC Insured........ ETM Aaa/AAA 09/01/01 8.300 1,113,788
------------
TOTAL SOUTH DAKOTA.................. 16,013,788
------------
TEXAS (13.5%)
2,000 Abilene Health Facilities Development,
(Corporate Hospital Revenue,
Series B, due 09/19/25)............... ARDB Aaa/AAA 11/09/99(a) 3.850 2,000,000
4,000 Abilene Higher Education Authority, Inc.
(due 07/01/27)........................ ARDB Aaa/NR 11/10/99(a) 3.830 4,000,000
1,000 Brazos Higher Education Authority, Inc.,
(Student Loan Revenue, Series A-1, due
03/01/06)............................. ARDB NR NR 11/12/99(a) 3.750 1,000,000
4,300 Brazos Higher Education Authority, Inc.,
(Student Loan Revenue, Series A-1, due
06/01/14)............................. ARDB Aaa/NR 11/12/99(a) 3.800 4,300,000
5,000 Brazos River Authority Pollution Control
Revenue, (Texas Utilities Electric
Co., Series B, due 06/01/30).......... RB Baa1/BBB 06/19/00(a) 4.150 4,999,500
3,000 Brazos River Authority Pollution Control
Revenue, (Texas Utilities Electric
Co., Series A, due 04/01/33).......... RB A3/BBB+ 04/01/00(a) 3.700 2,999,130
4,000 Harris County, (Toll Road Suburban Lien
Revenue, due 08/01/14)................ RB Aa1/AA 08/01/01(a) 6.750 4,242,520
1,650 Houston, (Series C, due 03/01/03)....... Prerefunded NR/AA- 03/01/02(a) 5.900 1,703,345
4,175 Houston, (Series C, due 03/01/03)....... GO Aa3/AA- 03/01/02(a) 5.900 4,293,194
3,035 Humble Independent School District, (due
2/15/04).............................. GO Aaa/AAA 02/15/03(a) 6.000 3,155,368
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 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% $ 3,002,820
8,825 Texas National Research Laboratory,
(Super Conducting Super Collider, due
12/01/21)............................. Prerefunded AAA/AAA 12/01/01(a) 7.100 9,486,963
3,290 Texas, (Public Finance Authority,
Series B, due 10/01/12)............... Prerefunded Aa1/AA 10/01/04(a) 5.750 3,436,833
3,000 University Permanent University Fund,
(Series A, due 07/01/13).............. RB Aaa/AAA 07/01/02(a) 6.250 3,064,380
------------
TOTAL TEXAS......................... 51,684,053
------------
UTAH (1.7%)
6,000 Intermountain Power Agency, (Power
Supply Revenue, Series B), MBIA
Insured............................... RB Aaa/AAA 07/01/03 6.250 6,335,820
------------
VERMONT (6.0%)
3,000 Vermont Student Assistance Corp.,
(Student Loan Revenue, Series E, due
06/15/12)............................. ARDB Aaa/AAA 11/17/99(a) 3.770 3,000,000
4,800 Vermont Student Assistance Corp.,
(Student Loan Revenue, Series F, due
12/15/24)............................. ARDB Aaa/AAA 11/10/99(a) 3.850 4,800,000
12,000 Vermont Student Assistance Corp.,
(Student Loan Revenue, Series I, due
12/15/15)............................. ARDB Aaa/AAA 11/03/99(a) 3.400 12,000,000
3,000 Vermont Student Assistance Corp.,
(Student Loan Revenue, Series N, due
12/15/32)............................. ARDB Aaa/AAA 11/25/99(a) 3.850 3,000,000
------------
TOTAL VERMONT....................... 22,800,000
------------
WASHINGTON (4.5%)
2,000 King County School District, (due
12/01/07)............................. Prerefunded A1/A+ 12/01/02(a) 6.700 2,126,820
2,600 Seattle Municipal Light & Power Revenue,
(Series B, due 08/01/04).............. RB Aa2/AA 08/01/02(a) 5.500 2,712,164
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 4,000 Tacoma Electric System Revenue, (due
01/02/15), AMBAC Insured.............. Prerefunded Aaa/AAA 01/01/01(a) 6.514% $ 4,169,760
6,000 Washington Public Power Supply System,
(Nuclear Project #2, Series C, due
07/01/10)............................. Prerefunded Aaa/AAA 01/01/01(a) 7.625 6,342,960
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 1,038,250
1,005 Whatcom County School District, (No. 501
Bellingham), FSA Insured.............. GO Aaa/A1 12/01/00 4.000 1,004,236
------------
TOTAL WASHINGTON.................... 17,394,190
------------
WISCONSIN (4.2%)
5,000 De Pere Development Revenue, (Box
Packaging Project, Series A, due
06/01/29)............................. RB Aa1/NR 01/01/00(a) 4.200 5,000,300
5,000 Wisconsin Health & Education Facilities
Authority Revenue, (Beloit College
Project, Series 1999, due 12/31/50)... PP NR/NR 11/09/99(a) 3.794 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 6,120,813
------------
TOTAL WISCONSIN..................... 16,121,113
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
WYOMING (0.9%)
$ 3,500 Wyoming Student Loan Corp., (Student
Loan Revenue, Series B, due
06/01/34)............................. ARDB NR/AA 11/24/99(a) 4.250% $ 3,500,000
------------
TOTAL MUNICIPAL SECURITIES (COST $286,210,587)............................................. 285,200,854
------------
<CAPTION>
SHARES
- --------------
<C> <S> <C> <C> <C> <C> <C>
PREFERRED STOCKS (0.2%)
34,760 Farmers Group Capital
(cost $899,415)....................... Aaa/AAA 12/31/25 8.450 862,483
------------
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS)
- --------------
<C> <S> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (0.1%)
300 U.S. Treasury Notes (cost $300,638)..... 02/15/00 5.875 300,543
------------
TOTAL LONG TERM INVESTMENTS (COST $305,047,394)............................................ 303,949,027
------------
SHORT-TERM INVESTMENTS (19.5%)
COMMERCIAL PAPER-DOMESTIC (1.3%)
5,000 Texas Utilities Co...................... CP 02/15/00 6.252(y) 4,914,611
------------
CORPORATE OBLIGATIONS (2.3%)
8,000 MCI Worldcom, Inc., (144A).............. A3/A- 08/17/00 5.645 8,006,240
750 Williams Companies, Inc., (144A)........ Baa2/BBB- 02/15/00 5.950 750,030
------------
8,756,270
------------
MUNICIPAL SECURITIES (15.9%)
DISTRICT OF COLUMBIA (2.6%)
10,000 District of Columbia, (Series B)........ GO Baa3/BBB 06/01/00 4.250 9,994,600
------------
FLORIDA (0.4%)
1,300 Dade County Water & Sewer System
Revenue, (due 10/05/22), FGIC
Insured............................... VRDN VMIG1/A-1+ 11/03/99(a) 3.450 1,300,000
------------
INDIANA (1.3%)
5,000 Indiana Health Facilities Financing
Authority, (due 03/31/00)............. VRDN NR/NR 11/04/99(a) 3.670 5,000,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
LOUISIANA (0.6%)
$ 2,400 Louisiana Public Facilities Authority,
(Industrial Development, Kinner Hotel
Ltd., due 12/01/15), LOC - Deutsche
Bank A.G.............................. VRDN P-1/NR 11/01/99(a) 3.550% $ 2,400,000
------------
MISSISSIPPI (2.6%)
10,000 Mississippi Business Financial Corp.,
(Industrial Development Revenue,
Series B, due 06/01/20)............... VRDN P-1/A-1+ 11/01/99(a) 6.150 10,000,000
------------
NEW YORK (1.4%)
5,250 Long Island Power Authority, (Electric
Systems Revenue)...................... RB Baa/A- 04/01/00 4.000 5,246,272
------------
OHIO (0.1%)
500 Ohio Building Authority, (Disalle
Government Center, Series A).......... RB Aa2/AA- 10/01/00 5.000 505,125
------------
PUERTO RICO (1.9%)
7,015 Puerto Rico Commonwealth................ GO Baa1/A 07/01/00 5.000 7,073,225
------------
TEXAS (4.2%)
8,000 ABN Amro Munitops Certificates Trust,
(Series 1999-6, due 03/07/07)
(144A)................................ VRDN VMIG1/ NR 11/03/99(a) 3.630 8,000,000
5,000 ABN Amro Munitops Certificates Trust,
(Series 1999-9, due 08/08/07)
(144A)................................ VRDN VMIG1/ NR 11/03/99(a) 3.630 5,000,000
3,000 Texas, (Series A)....................... TRAN MIG1/Sp-1+ 08/31/00 4.500 3,016,830
------------
16,016,830
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATINGS MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- ----------- ---------------- ----------- --------- ---------------
<C> <S> <C> <C> <C> <C> <C>
VIRGINIA (0.8%)
$ 3,000 Virginia State Transportation Board,
(Transportation Contract Revenue,
Series A6, Registered D Shares, due
04/01/18), LIQ FAC-Bayerische Hypo.... VRDN VMIG1/NR 11/03/99(a) 3.650% $ 3,000,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $74,206,626)............................................ 74,206,933
------------
TOTAL INVESTMENTS (COST $379,254,020) (98.9%).................................................. 378,155,960
OTHER ASSETS IN EXCESS OF LIABILITIES (1.1%)................................................... 4,389,818
------------
NET ASSETS (100.0%)............................................................................ $382,545,778
============
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $379,254,020, for federal income
tax purposes at October 31, 1999, the aggregate gross unrealized appreciation
and depreciation was $49,487 and $1,147,547, respectively, resulting in net
unrealized depreciation of investments of $1,098,060.
(a) The date listed under the heading maturity date represents an optional
tender date or the next interest reset date, which may vary. The actual maturity
date is indicated in the security description.
(y) Yield to maturity.
AMBAC - Ambac Indemnity Corp.
ARDB - Auction Rate Debt Bond.
CP - Commercial Paper.
ETM - Escrowed To Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Securities Assistance
GO - General Obligation.
LIQ FAC - Liquid Facility.
LOC - Letter of Credit.
MBIA - Municipal Bond Investors Assurance Corp.
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
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $379,254,020 ) $378,155,960
Interest Receivable 4,616,458
Receivable for Investments Sold 3,654,650
Receivable for Fund Shares Sold 300,853
Receivable for Expense Reimbursements 229,628
Prepaid Trustees' Fees 370
Prepaid Expenses and Other Assets 362
------------
Total Assets 386,958,281
------------
LIABILITIES
Payable for Investments Purchased 3,000,000
Payable for Fund Shares Redeemed 455,608
Due to Custodian 344,579
Dividends Payable to Shareholders 297,743
Advisory Fee Payable 81,723
Shareholder Servicing Fee Payable 36,298
Administrative Services Fee Payable 16,447
Administration Fee Payable 273
Fund Services Fee Payable 214
Accrued Expenses 179,618
------------
Total Liabilities 4,412,503
------------
NET ASSETS $382,545,778
============
INSTITUTIONAL SHARES
Applicable to 178,635,579 shares outstanding
(par value $0.001, unlimited shares authorized) $354,823,191
============
Net Asset Value, Offering and Redemption Price
per Share $1.99
----
----
SELECT SHARES
Applicable to 13,954,849 shares outstanding
(par value $0.001, unlimited shares authorized) $ 27,722,587
============
Net Asset Value, Offering and Redemption Price
per Share $1.99
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $384,091,129
Accumulated Net Realized Loss on Investments and
Futures Contracts (447,291)
Net Unrealized Depreciation of Investments (1,098,060)
------------
Net Assets $382,545,778
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 16, 1999 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31,
1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 6,294,977
Dividend Income 119,021
-----------
Investment Income 6,413,998
EXPENSES
Advisory Fee $ 378,517
Shareholder Servicing Fee-Institutional Shares 140,498
Registration Fees 113,960
Administrative Services Fee 76,874
Custodian Fees and Expenses 60,654
Shareholder Servicing Fee-Select Shares 24,844
Fund Services Fee 2,246
Administration Fee 1,278
Trustees' Fees and Expenses 513
Miscellaneous 69,215
---------
Total Expenses 868,599
Less: Reimbursement of Expenses (465,239)
---------
NET EXPENSES 403,360
-----------
NET INVESTMENT INCOME 6,010,638
NET REALIZED LOSS ON INVESTMENTS
Investment Transactions (424,397)
Futures Contracts (22,894)
---------
Net Realized Loss (447,291)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENTS (1,098,060)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 4,465,287
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 16, 1999
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 1999
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 6,010,638
Net Realized Loss on Investments and Futures
Contracts (447,291)
Net Change in Unrealized Depreciation of
Investments (1,098,060)
------------------
Net Increase in Net Assets Resulting from
Operations 4,465,287
------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Institutional Shares (5,639,686)
Select Shares (370,952)
------------------
Total Distributions from Net Investment
Income (6,010,638)
------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 442,652,632
Reinvestment of Dividends 4,545,226
Cost of Shares of Beneficial Interest Redeemed (63,106,729)
------------------
Net Increase from Shareholder Transactions 384,091,129
------------------
Total Increase in Net Assets 382,545,778
NET ASSETS
Beginning of Period --
------------------
End of Period $ 382,545,778
==================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout this period is as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES SELECT SHARES
-------------------- -------------------
FOR THE PERIOD FOR THE PERIOD
APRIL 16, 1999 MAY 6, 1999
(COMMENCEMENT OF (COMMENCEMENT OF
OPERATIONS) THROUGH OPERATIONS) THROUGH
OCTOBER 31, 1999(A) OCTOBER 31, 1999(B)
-------------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.00 $ 2.00
------------------ ------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.04
Net Realized and Unrealized Loss on Investments
and Futures Contracts (0.01) (0.01)
------------------ ------------------
Total from Investment Operations 0.03 0.03
------------------ ------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.04) (0.04)
------------------ ------------------
NET ASSET VALUE, END OF PERIOD $ 1.99 $ 1.99
================== ==================
RATIOS AND SUPPLEMENTAL DATA
Total Return 1.57%(c) 1.29%(c)
Net Assets, End of Period (in thousands) $ 354,823 $ $27,723
Ratios to Average Net Assets
Net Expenses 0.25%(d) 0.50%(d)
Net Investment Income 4.01%(d) 3.75%(d)
Expenses without Reimbursement 0.57%(d) 0.72%(d)
Portfolio Turnover 69%(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.
22
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Tax Aware Enhanced Income Fund (the "fund") is a series of
J.P. Morgan Series Trust, a Massachusetts business trust (the "trust") which was
organized on August 15, 1996. The trust is registered under the Investment
Company Act of 1940, as amended, as 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
23
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 October 31, 1999, 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
24
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 October 31, 1999.
f) The fund may enter into commitments to buy and sell investments to settle
on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
g) The fund may engage in swap transactions, specifically interest rate,
currency, index and total return swaps. The fund will use these
transactions to preserve a return or spread on a particular investment or
portion of its investments, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the
price of securities the fund anticipates purchasing at a later date, or to
gain exposure to certain markets in the most economical way possible. An
interest rate swap is an agreement between two parties to exchange
interest payments on a specified amount ("the notional amount") for a
specified period. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange the notional amount as
well. Risks associated with swap transactions include the ability of
counterparties to meet the terms of their contracts, and the amount of the
fund's potential gain or loss on swap transactions is not subject to any
fixed limit.
h) Net investment income (other than shareholder servicing fees) and
unrealized and realized gains and losses are allocated daily to each class
of shares based upon the relative proportion of net assets of each class
at the beginning of the day.
i) Substantially all of the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholder's of net
realized capital gains, if any, are declared and paid annually.
j) The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
2. TRANSACTIONS WITH AFFILIATES
a) The fund has an Investment Advisory Agreement with J.P. Morgan Investment
Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company
of New York ("Morgan") and a wholly
25
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
owned subsidiary of J.P. Morgan and Company, Incorporated
("J.P. Morgan"). Under the terms of the agreement, the fund pays Morgan at
an annual rate of 0.25% of the fund's average daily net assets. For the
period April 16, 1999 (commencement of operations) through October 31,
1999, this fee amounted to $378,517.
b) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the
period April 16, 1999 (commencement of operations) through October 31,
1999, 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
period April 16, 1999 (commencement of operations) through October 31,
1999, the fee for these services amounted to $76,874.
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 after February 29,
2000 at the option of J.P. Morgan. For the period April 16, 1999
(commencement of operations) through October 31, 1999, Morgan has agreed
to reimburse Institutional Shares and Select Shares, $444,130 and $21,109,
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 period April 16, 1999
(commencement of operations) through October 31, 1999, the fee for these
services amounted to $140,498 and $24,844 for Institutional Shares and
Select Shares, respectively.
26
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$2,246 for the period April 16, 1999 (commencement of operations) through
October 31, 1999.
f) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which
they invest. The Trustees' Fees and Expenses shown in the financial
statements represents the fund's allocated portion of the total fees and
expenses. The trust's Chairman and Chief Executive Officer also serves as
Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $400.
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 (COMMENCEMENT
OF OPERATIONS) THROUGH
OCTOBER 31, 1999
-----------------------------
SHARES AMOUNT
------------- --------------
<S> <C> <C>
Shares sold...................................... 59,897,441 $409,818,197
Dividend reinvestment............................ 1,819,148 4,238,425
Shares issued due to stock split................. 134,183,876 --
Shares redeemed.................................. (17,264,886) (57,789,703)
----------- ------------
Net Increase..................................... 178,635,579 $356,266,919
=========== ============
</TABLE>
27
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
SELECT SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 6, 1999 (COMMENCEMENT
OF OPERATIONS) THROUGH
OCTOBER 31, 1999
---------------------------
SHARES AMOUNT
------------ -------------
<S> <C> <C>
Shares sold...................................... 6,301,706 $32,834,435
Dividend Reinvestment............................ 126,790 306,800
Shares issued due to stock split................. 9,632,859 --
Shares redeemed.................................. (2,106,506) (5,317,025)
---------- -----------
Net Increase..................................... 13,954,849 $27,824,210
========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period
April 16, 1999 (commencement of operations) through October 31, 1999 were as
follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $ 301,500 $ --
Corporate Obligations............................ 7,765,089 6,813,076
Municipal Obligations............................ 482,200,134 142,507,243
------------ ------------
$490,266,723 $149,320,319
============ ============
</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 October 31, 1999.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Tax Aware Enhanced Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of J.P. Morgan Tax Aware Enhanced
Income Fund (one of the funds comprising the J.P. Morgan Series Trust, hereafter
referred to as the "fund") to October 31, 1999, the results of its operations,
the changes in net assets and the financial highlights for the period April 16,
1999 (commencement of operations) to October 31, 1999, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial highlights in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included conformation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
29
<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
IM0783-MI
J.P. MORGAN
TAX AWARE
ENHANCED
INCOME FUND
ANNUAL REPORT
OCTOBER 31, 1999
