<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN CALIFORNIA BOND FUND
June 1, 1998
Dear Shareholder:
The J.P. Morgan California Bond Fund ("the fund") provided positive returns for
the year ended April 30, 1998. The fund outperformed its competitors, as
measured by the Lipper California Intermediate Municipal Debt Bond Fund Average.
For the reporting period, Institutional Shares returned 7.35% and Select Shares
7.20% compared with 7.05% for the Lipper Average. The fund's benchmark, the
Lehman Brothers 1-16 Year Municipal Bond Index, returned 7.98% over the same
period.
Net asset values of the Institutional and Select Shares on April 30, 1998 were
$10.20 and $10.35, respectively. Net assets attributable to Institutional Shares
stood at approximately $46.3 million on that date, while those of Select Shares
were approximately $5.8 million. During the period, the fund made distributions
from ordinary income of approximately $0.42 to Institutional shareholders and
$0.41 to Select shareholders. Substantially all of these distributions represent
tax-exempt interest dividends.
The report that follows includes an interview with Elaine Young and Robert
Meiselas, members of the portfolio management team responsible for the fund.
This interview is designed to answer commonly asked questions about the fund,
elaborate on what happened during the reporting period, and provide an outlook
for the months ahead.
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 toll free at the telephone
numbers indicated on the cover of this report.
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
<TABLE>
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS . . . . .1 GLOSSARY OF TERMS . . . . . . . . .7
FUND PERFORMANCE . . . . . . . . . .2 FUND FACTS AND HIGHLIGHTS . . . . .8
PORTFOLIO MANAGER Q & A. . . . . . .4 FINANCIAL STATEMENTS. . . . . . . 10
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to take a 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 December 23, 1996* would have grown to
$5,380,814 on April 30, 1998.
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 you
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 SINCE FUND INCEPTION
DECEMBER 23, 1996* - APRIL 30, 1998
[GRAPH]
<TABLE>
<CAPTION>
Institutional Shares Lehman 1-16 Yr. Lipper Calif. Int Muni
Muni Bond Index Debt Bond Fund Avg.
<S> <C> <C> <C>
Dec-96 5,000,000 5,000,000 5,000,000
Jan-97 4,990,050 5,018,500 5,009,500
Feb-97 5,032,460 5,061,660 5,042,560
Mar-97 4,983,190 5,000,920 4,992,640
Apr-97 5,012,470 5,034,920 5,017,110
May-97 5,085,990 5,098,820 5,081,830
Jun-97 5,134,460 5,146,750 5,128,580
Jul-97 5,259,210 5,264,610 5,247,050
Aug-97 5,210,460 5,226,910 5,204,020
Sep-97 5,274,830 5,281,800 5,256,060
Oct-97 5,282,300 5,310,320 5,271,310
Nov-97 5,305,740 5,332,620 5,292,920
Dec-97 5,386,160 5,398,210 5,355,900
Jan-98 5,425,200 5,451,660 5,406,250
Feb-98 5,427,980 5,456,020 5,411,120
Mar-98 5,414,760 5,459,290 5,401,920
Apr-98 5,380,814 5,436,906 5,371,125
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- -----------------------------
THREE SIX ONE SINCE
AS OF APRIL 30, 1998 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan California Bond Fund:
Institutional Shares -0.82% 1.87% 7.35% 5.68%
Lehman Brothers 1-16 Yr Muni Bond Index -0.27% 2.38% 7.98% 6.49%
Lipper California Intermediate Muni
Debt Bond Fund Avg. -0.66% 1.88% 7.05% 5.52%
AS OF MARCH 31, 1998
- ------------------------------------------------------------- -----------------------------
J.P. Morgan California Bond Fund:
Institutional Shares 0.53% 2.65% 8.66% 6.60%
Lehman Brothers 1-16 Yr Muni Bond Index 1.13% 3.36% 9.12% 7.29%
Lipper California Intermediate Muni
Debt Bond Fund Avg. 0.87% 2.78% 8.20% 6.39%
</TABLE>
*12/23/96 -- COMMENCEMENT OF OPERATIONS (TOTAL RETURNS BASED ON MONTH END
FOLLOWING INCEPTION). ACTUAL RETURN SINCE INCEPTION: INSTITUTIONAL SHARES
RETURNED 5.82%.
LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF
CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER.
2
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to take a look at the growth of a hypothetical
investment of $10,000. The chart at right shows that $10,000 invested on
December 23, 1996** would have grown to $10,746 on April 30, 1998.
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 you
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 SINCE FUND INCEPTION
DECEMBER 23, 1996** - APRIL 30, 1998
[GRAPH]
<TABLE>
<CAPTION>
Lehman 1-16 Yr. Lipper Calif. Int Muni
Select Shares Muni Bond Index Debt Bond Fund Avg.
<S> <C> <C> <C>
Dec-96 10,000 10,000 10,000
Jan-97 9,980 10,037 10,019
Feb-97 10,065 10,123 10,085
Mar-97 9,966 10,002 9,985
Apr-97 10,024 10,070 10,034
May-97 10,168 10,198 10,164
Jun-97 10,262 10,293 10,257
Jul-97 10,517 10,529 10,494
Aug-97 10,420 10,454 10,408
Sep-97 10,535 10,564 10,512
Oct-97 10,559 10,621 10,543
Nov-97 10,604 10,665 10,586
Dec-97 10,761 10,796 10,712
Jan-98 10,837 10,903 10,813
Feb-98 10,841 10,912 10,822
Mar-98 10,814 10,919 10,804
Apr-98 10,746 10,874 10,742
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- -----------------------------
THREE SIX ONE SINCE
AS OF APRIL 30, 1998 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan California Bond Fund:
Select Shares** -0.84% 1.77% 7.20% 5.56%
Lehman Brothers 1-16 Yr Muni Bond Index -0.27% 2.38% 7.98% 6.49%
Lipper California Intermediate Muni
Debt Bond Fund Avg. -0.66% 1.88% 7.05% 5.52%
AS OF MARCH 31, 1998
- ------------------------------------------------------------- -----------------------------
J.P. Morgan California Bond Fund:
Select Shares** 0.49% 2.64% 8.50% 6.48%
Lehman Brothers 1-16 Yr Muni Bond Index 1.13% 3.36% 9.12% 7.29%
Lipper California Intermediate Muni
Debt Bond Fund Avg. 0.87% 2.78% 8.20% 6.39%
</TABLE>
*4/21/97 -- COMMENCEMENT OF OPERATIONS (TOTAL RETURNS BASED ON MONTH END
FOLLOWING INCEPTION). ACTUAL RETURN SINCE INCEPTION: SELECT SHARES RETURNED
5.71%.
**CONSISTENT WITH APPLICABLE REGULATORY GUIDANCE, PERFORMANCE FOR THE FUND'S
SELECT SHARES PRIOR TO APRIL 21, 1997, REFLECTS THE PERFORMANCE OF THE FUND'S
INSTITUTIONAL SHARES. THE PERFORMANCE FOR SUCH PERIOD REFLECTS THE DEDUCTION OF
LOWER CHARGES AND EXPENSES ASSOCIATED WITH HOLDING INSTITUTIONAL SHARES.
LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF
CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER.
3
<PAGE>
PORTFOLIO MANAGER Q&A
This interview was conducted with Elaine Young and Robert Meiselas, both members
of the portfolio management team responsible for managing the J.P. Morgan
California Bond Fund. This interview was conducted on May 25, 1998 and
represents both Elaine and Bob's views on that date.
[PHOTO]
ELAINE YOUNG, vice president, is a portfolio manager with the U.S. Fixed Income
Group and responsible for managing municipal bonds. In Ms. Young's previous
position at J.P. Morgan, she traded tax-exempt securities. Elaine joined J.P.
Morgan in 1994 after five years of municipal trading experience at Scudder,
Stevens, and Clark. She graduated from New York University with a BS degree in
1986 and an MBA in Finance in 1989. Elaine is also a Chartered Financial
Analyst.
[PHOTO]
ROBERT MEISELAS, vice president, is a portfolio manager with the U.S. Fixed
Income Group responsible for managing municipal bonds, including tax-exempt
private placements. Mr. Meiselas is a CPA and joined J.P. Morgan's financial
group in 1982, after having spent ten years at Coopers & Lybrand. Bob also spent
five years in J.P. Morgan's Private Banking Investment Management Group, and
moved to J.P. Morgan Investment Management in 1997. Bob is a graduate of St.
John's University and has completed graduate work at Long Island University in
the field of taxation.
LET'S START OFF BY GETTING A GENERAL BACKDROP. WHAT IMPORTANT EVENTS HAVE
OCCURRED IN THE TAX-EXEMPT BOND MARKET OVER THE PAST YEAR?
EY: The continued economic difficulties in Asia have had a profound effect on
the bond markets. US. Treasury securities were purchased by foreign investors in
a "flight to quality" from this turmoil. Municipals rallied during the same time
period but did not keep pace with Treasuries since municipals are not attractive
to foreign buyers. However, high relative yields for municipals did attract
domestic investors that do not typically invest in the municipal bond market.
Strong participation from these cross-over buyers enabled the muni market to
absorb an extremely large new issue supply which might otherwise have weakened
muni bond prices.
HOW HAS SUPPLY, PARTICULARLY IN CALIFORNIA, AFFECTED THE MUNICIPAL BOND MARKET?
EY: Low interest rates have stimulated new issue supply which was much higher
than most analyst's projections. We experienced peaks and valleys in new issues
of California bonds, which led to some vacillation in the prices of California
municipal bonds. We were able to take advantage of these fluctuations by
purchasing out-of-state bonds when California municipals were in short supply
and then selling them when increased supply forced California prices downward.
4
<PAGE>
HAVE CHANGES IN THE U.S. ECONOMY AFFECTED THE MUNICIPAL BOND SUPPLY?
RM: Yes, a couple of years ago there was a strict balance-the-budget mindset
that caused new bond referendums to fail. People didn't want to issue bonds
because they believed that there was a direct cause and effect relationship
between huge budget deficits and municipal borrowing. In my opinion, everyone's
feeling a little more comfortable about having more money to spend. Many state
and local governments have managed to balance their budgets and some are
reported large surpluses. While voters still want balanced budgets, they now
seem to be more receptive to new project financing.
EY: There's also been some pent-up need caused by a lack of infrastructure
spending during the lean budget years. The voters are now allowing some of those
deferred projects to be funded.
THERE'S BEEN A LOT OF GOOD NEWS IN THE CALIFORNIA MUNICIPAL MARKET LATELY, ISN'T
THAT CORRECT?
RM: Governor Wilson's recent budget update reveals that both employment growth
and personal income are above the national averages. The budget surplus is
expected to be $4.2 billion. Although the Asian influence is noted, it should
not be a large concern to the State. More than one-half of California's exports
go to Asia, but most are components slated for assembly which are then exported
back to the U.S.
FOR THE PERIOD UNDER REVIEW, THE FUND OUTPERFORMED THE LIPPER CALIFORNIA
INTERMEDIATE MUNICIPAL DEBT BOND FUND AVERAGE BUT UNDERPERFORMED ITS BENCHMARK,
THE LEHMAN BROTHERS 1-16 YEAR MUNICIPAL BOND INDEX. WHY?
RM: That can be difficult to pin down in a municipal fund. It's notable that
you can't buy the Lehman Muni Index. It's not like an equity index such as the
S&P 500 or even a taxable bond index like the Salomon Broad Investment Grade,
which can be replicated. Furthermore, it often has excess concentrations of a
single municipal credit, which is something we would try to avoid in the fund's
portfolio. The Lehman Muni Index is a guide to tell investors and tell us what
is the general direction of interest rates and the market, and it doesn't always
accurately track the California market. It's an imperfect measure for
performance.
I should also point out that we manage this fund with a high priority on quality
and consistency. The average credit quality of the portfolio is AA and almost
70% of the portfolio is rated AAA. The portfolio is also structured to have an
intermediate duration, rather than a long one, to minimize volatility. So while
the fund has provided competitive returns, we try to provide those returns with
less risk.
EY: As far as edging out the competition, I would largely attribute it to our
disciplined process. We try to buy bonds that are undervalued and sell the ones
that are overvalued based on our internal credit research. It also helps to have
a dedicated trading desk. Execution is extremely important in the municipal
market. Another plus has come from buying private placements, as they provide
additional yield without additional credit risk.
5
<PAGE>
TELL US MORE ABOUT THE PRIVATE PLACEMENTS.
RM: Private placements are bonds that we purchase directly from issuers rather
than through the public bond market. Since it's cheaper for issuers to borrow in
the private placement market, we are able to obtain better yields for the
portfolio than public bonds. Morgan is able to use its credit expertise to
select private placements that it considers to be investment grade. In this way,
we believe that we are able to add better performance without taking on
additional credit risk.
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS? AND HOW ARE YOU POSITIONING THE
FUND?
EY: Currently, the fund is neutral compared to its benchmark. Uncertainty about
events in Asia have buffered U.S. domestic concern about the strong economy and
inflation has been well behaved. This may not continue to be the case. Concern
about Asia may begin to ease and the market may refocus concern about
inflationary trends in the U.S. economy. We may shorten the duration of the
portfolio if we continue to see strong housing and employment numbers. We also
note that added yield for lower quality municipal bonds is very small. We will
continue to emphasize higher quality bonds until credit spreads increase.
6
<PAGE>
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One basis point equals 0.01%
of yield. For example if a bond's yield changed from 10.25% to 11.00%, it would
have moved 75 basis points.
CREDIT RATING: The rating assigned to a bond by independent rating agencies such
as Standard & Poor's and Moody's. In evaluating creditworthiness, these agencies
assess the issuer's present financial condition and future ability and
willingness to make principal and interest payments when due.
DURATION: Duration is used as a measure of the relative sensitivity of the price
of a security to a change in interest rates. The longer the duration, the more
sensitive the bond is to interest rate moves. For example, a bond with a 5-year
duration will experience an approximate 5% increase in price if interest rates
drop 100 basis points (1%) while a bond with a 10-year duration would see its
price rise by approximately 10%.
MATURITY: The date on which the life of a financial instrument ends through cash
or physical settlement, or expiration with no value, or the date a security
comes due and fully payable. Average maturity refers to the average time to
maturity of the entire portfolio.
PRIVATE PLACEMENT: The direct sale of a block of securities of a new or
secondary issue to a single investor or group of investors. The sale or
placement is usually made through an investment banker and the securities'
public resale is restricted if they are not registered under the Securities Act
of 1933.
YIELD CURVE: A graph showing the term structure of interest rates at a point in
time, ranging from the shortest to the longest available. The resulting curve
shows if short-term interest rates are higher or lower than long-term rates.
YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.5% and a municipal is yielding 5.5%,
the spread is 1% or 100 basis points.
7
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan California Bond Fund seeks to provide a high after-tax total return
for California residents consistent with moderate risk of capital. It is
designed for investors subject to federal and California income taxes who seek a
high after-tax total return and who are willing to receive some taxable income
and capital gains to achieve that return.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
INSTITUTIONAL SHARES: 12/23/96
SELECT SHARES: 4/21/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/98
INSTITUTIONAL SHARES: $46,280,095
SELECT SHARES: $5,810,684
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 4/30/98
$52,090,779
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/11/98
EXPENSE RATIOS
INSTITUTIONAL SHARES: 0.45%
SELECT SHARES: 0.65%
The current annual expense ratios cover shareholders' expenses for custody, tax
reporting, investment advisory and shareholder services, after reimbursement.
The fund is no-load and does not charge any sales, redemption, or exchange fees.
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, 1998
SECTOR ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
INSURED 67.0%
REVENUE BOND 24.8%
GENERAL OBLIGATION 4.5%
SHORT-TERM/OTHER 3.7%
30-DAY SEC YIELD*
Institutional Shares: 4.17%
Select Shares: 3.90%
DURATION
5.79 years
QUALITY PROFILE
AAA** 72.70%
AA 13.23%
A 9.69%
Other 4.38%
* YIELDS REFLECT THE REIMBURSEMENT OF CERTAIN FUND EXPENSES AS DESCRIBED IN THE
PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED YIELDS WOULD HAVE BEEN LOWER.
** INCLUDES SHORT-TERM INVESTMENTS AND CASH
8
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW YORK
SERVES AS INVESTMENT ADVISOR AND MAKES THE FUNDS AVAILABLE SOLELY IN ITS
CAPACITY AS SHAREHOLDER SERVICING AGENT. SHARES OF THE FUNDS 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 MORE OR LESS
THAN ORIGINAL COST.
Income may be subject to state and local taxes. Some income may be subject to
the Federal alternative minimum tax.
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.
9
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ----------------------------------- ------- ----------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (92.2%)
CALIFORNIA (84.5%)
$ 500 Alameda Public Financing Authority,
(Refunding, Marina Revenue,
Special Assessment).............. RB NR/NR 09/02/06 5.900% $ 511,080
2,000 Anaheim Public Financing Authority,
(Public Improvements Project,
Series C), FSA Insured........... RB Aaa/AAA 09/01/10 6.000 2,220,600
1,000 California......................... GO A1/A+ 04/01/03 6.800 1,108,200
1,000 California......................... GO A1/A+ 10/01/09 6.000 1,113,400
1,165 California Educational Facilities
Authority, (Refunding, University
of Southern California, Series
A)............................... RB Aa3/AA 10/01/06 5.600 1,251,501
525 California Educational Facilities
Authority, (University and
College Projects, Series B)...... RB Baa2/NR 04/01/07 6.750 587,291
1,890 California Health Facilities
Finance Authority, (Refunding,
Catholic Healthcare West, Series
A), MBIA Insured................. RB Aaa/AAA 07/01/06 5.500 2,000,773
1,000 California Health Facilities
Finance Authority, (Refunding,
Stanford Health Care, Series B),
AMBAC Insured.................... RB Aaa/AAA 11/15/09 5.000 1,015,390
1,500 California State Public Works
Board, (Correctional Facility
Improvements, Series E).......... RB A2/A 06/01/09 6.000 1,651,260
950 California State Public Works
Board, (University and College
Improvements, Series A).......... RB A2/A 04/01/99 5.000 958,322
1,280 California Statewide Communities
Development Authority,
(Refunding, St. Joseph Health
System).......................... RB Aa3/AA 07/01/06 5.500 1,358,605
1,000 California Statewide Communities
Development Authority, (Tax and
Revenue Anticipation, Series B),
FSA Insured...................... RB Aaa/AAA 09/30/98 4.750 1,003,670
600 La Quinta Redevelopment Agency,
(Refunding, Project Area No.1,
Special Tax Revenue), MBIA
Insured.......................... RB Aaa/AAA 09/01/11 7.300 740,868
1,000 Long Beach Harbor, (Airport and
Marina Improvements and Revenue),
MBIA Insured..................... RB Aaa/AAA 05/15/06 6.000 1,087,620
1,090 Long Beach Harbor, (Refunding,
Airport and Marina Improvements
and Revenue, Series A), FGIC
Insured.......................... RB Aaa/AAA 05/15/04 5.500 1,147,955
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ----------------------------------- ------- ----------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,000 Los Angeles County Correctional
Facilities, (Prerefunded,
Correctional Facility
Improvements, due 09/01/13), MBIA
Insured.......................... GO Aaa/AAA 09/01/00(a) 6.500% $ 1,070,080
1,000 Los Angeles County Public Works
Financing Authority, (Public
Improvements, Series B), AMBAC
Insured.......................... RB Aaa/AAA 12/01/07 6.000 1,105,310
1,500 Los Angeles County Public Works
Financing Authority, (Refunding,
Recreational Facility
Improvements, Special Assessment,
Series A)........................ RB Aa3/AA 10/01/05 5.250 1,568,235
1,000 Los Angeles County Transportation,
(Prerefunded, Transit
Improvements, Sales Tax Revenue,
Series A,
due 07/01/20).................... RB Aaa/AA- 07/01/01(a) 6.750 1,092,090
1,000 Los Angeles County Transportation,
(Refunding, Sales Tax Revenue,
Series B),
FGIC Insured..................... RB Aaa/AAA 07/01/02 5.875 1,059,600
1,000 Los Angeles County Unified School
District, (School Improvements,
Property Tax Revenue, Series A),
FGIC Insured..................... GO Aaa/AAA 07/01/10 6.000 1,114,080
500 Los Angeles Department of Water and
Power, (Crossover Refunded,
Electric Power and Light
Improvements and Revenues, due
04/01/32)........................ RB Aa3/A+ 04/01/02(a) 6.750 550,910
2,000 Los Angeles Municipal Improvements,
(Resource Recovery Improvements
and Revenue, Series A), FSA
Insured.......................... RB Aaa/AAA 02/01/03 5.500 2,098,380
1,700 Metropolitan Water District, (Water
Utility Improvements and Revenue,
Series C)........................ RB Aa2/AA 07/01/06 6.000 1,867,790
2,000 Orange County Public Financing
Authority, (Refunding, Resource
Recovery Revenue), AMBAC
Insured.......................... RB Aaa/NR 12/01/09 5.750 2,148,040
595 Palmadale Civic Authority,
(Refunding, Sales Tax Revenue,
Series A), MBIA Insured.......... RB Aaa/AAA 07/01/07 5.500 633,401
200 Port of Oakland, (Airport and
Marina Improvements and Revenue,
Series G), MBIA Insured.......... RB Aaa/AAA 11/01/07 6.000 218,506
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ----------------------------------- ------- ----------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,250 Riverside County Transportation
Authority, (Refunding, Sales Tax
Revenue, Series A), FGIC
Insured.......................... RB Aaa/AAA 06/01/09 6.000% $ 1,388,550
1,000 Sacramento Municipal Utility,
(Refunding, Electric Power and
Light Revenue, Series L), MBIA
Insured.......................... RB Aaa/AAA 07/01/01 5.000 1,023,060
1,610 San Bernardino County
Transportation Authority,
(Transit Improvements, Sales Tax
Revenue, Series A), FSA
Insured.......................... RB Aaa/AAA 03/01/07 5.250 1,681,870
1,000 San Diego Regional Transportation
Authority, (Highway and Transit
Improvements, Sales Tax Revenue,
Series A), FGIC Insured.......... RB Aaa/AAA 04/01/07 5.500 1,063,100
1,910 San Francisco City and County
Airport, (Refunding, Airport and
Marina Revenue, Second Series,
Issue 2), MBIA Insured........... RB Aaa/AAA 05/01/01 6.350 2,020,895
1,000 San Francisco State Building
Authority, (Public Improvements,
Series A), AMBAC Insured......... RB Aaa/AAA 12/01/09 6.000 1,114,670
1,000 San Jose Redevelopment Agency,
(Refunding, Public Improvements,
Special Tax Revenue), MBIA
Insured.......................... RB Aaa/AAA 08/01/09 6.000 1,112,080
1,250 Santa Margarita/Dana Point
Authority, (Refunding, Water
Revenue, Series A), AMBAC
Insured.......................... RB Aaa/AAA 08/01/06 5.250 1,311,413
1,000 Stockton Community Facilities,
(Refunding, Public Improvements,
No. 90-2-Brookside Estates,
Special Tax Revenue)............. RB NR/NR 08/01/02 5.200 990,050
-----------
TOTAL CALIFORNIA............... 43,988,645
-----------
DISTRICT OF COLUMBIA (2.0%)
1,000 Metropolitan Airports, (Airport and
Marina Improvements and Revenue,
Series B), FGIC Insured.......... RB Aaa/AAA 10/01/03 5.750 1,056,610
-----------
PUERTO RICO (2.2%)
1,000 Puerto Rico Electric Power
Authority, (Electric Power and
Light Improvements and Revenues,
Series AA), MBIA Insured......... RB Aaa/AAA 07/01/10 6.250 1,139,960
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ----------------------------------- ------- ----------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (3.5%)
$ 1,700 Washington Public Power Supply
Systems, (Refunding, Electric
Power and Light Revenue, Series
A), AMBAC Insured................ RB Aaa/AAA 07/01/05 6.000% $ 1,832,872
-----------
TOTAL LONG TERM INVESTMENTS (COST $47,508,678).............................. 48,018,087
-----------
SHORT-TERM INVESTMENTS (3.5%)
CALIFORNIA (3.5%)
1,750 Santa Clara County................. GO MIG1/SP1+ 10/01/98 4.750 1,756,913
100 West Basin Municipal Water
District, (Refunding, Series B,
callable,
due 08/01/27), LOC-Bayerische
Vereinsbank...................... VRDN VMIG1/NR 05/06/98(b) 3.850 100,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,855,894).............................. 1,856,913
-----------
TOTAL INVESTMENTS (COST $49,364,572) (95.7%).................................... 49,875,000
OTHER ASSETS IN EXCESS OF LIABILITIES (4.3%).................................... 2,215,779
-----------
NET ASSETS (100.0%)............................................................. $52,090,779
-----------
-----------
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $49,364,572 for federal income tax
purposes at April 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $601,150 and $90,722, respectively, resulting in net unrealized
appreciation of investments of $510,428.
(a) The date listed under the heading maturity date represents an optional
tender date or the next interest rate reset period. The actual maturity date is
indicated in the security description.
(b) Variable Rate Demand Notes tender dates and/or interest rates are reset at
specified intervals which coincide with their tender feature. The actual
maturity date is indicated in the security description.
Abbreviations used in schedule of investments:
AMBAC - Ambac Indemnity Corp., FGIC - Financial Guaranty Insurance Co., FSA -
Financial Security Assurance, GO - General Obligation, LOC - Letter of Credit,
MBIA - Municipal Bond Investors Assurance Corp., NR - Not Rated, RB - Revenue
Bond, VRDN - Variable Rate Demand Note.
Definition of terms used:
Crossover Refunded: Bonds for which the issuer of the bond invests the proceeds
from a subsequent bond issue in cash and/or securities which have been
deposited.
Refunding: Bonds for which the issuer has issued new bonds and canceled the old
issue.
Prerefunded: Bonds for which the issuer of the bond invests the proceeds from a
subsequent bond issuance in treasury securities, whose maturity coincides with
the first call date of the first bond.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $49,364,572 ) $49,875,000
Cash 1,225,932
Interest Receivable 809,565
Receivable for Fund Shares Sold 270,104
Deferred Organization Expenses 34,730
Receivable for Expense Reimbursement 20,857
Prepaid Trustees' Fees 411
Prepaid Expenses and Other Assets 93
-----------
Total Assets 52,236,692
-----------
LIABILITIES
Dividends Payable to Shareholders 71,173
Advisory Fee Payable 13,696
Payable for Fund Shares Redeemed 10,000
Organization Expenses Payable 8,537
Shareholder Servicing Fee Payable 3,253
Custody Fee Payable 3,167
Administrative Services Fee Payable 2,657
Fund Services Fee Payable 186
Administration Fee Payable 64
Accrued Expenses 33,180
-----------
Total Liabilities 145,913
-----------
NET ASSETS $52,090,779
-----------
-----------
ANALYSIS OF NET ASSETS
Paid-in Capital $51,533,134
Accumulated Net Realized Gain on Investments 47,217
Net Unrealized Appreciation of Investments 510,428
-----------
Net Assets $52,090,779
-----------
-----------
INSTITUTIONAL SHARES
Applicable to 4,537,146 shares outstanding
(par value $0.001, unlimited shares authorized) $46,280,095
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $10.20
-----
-----
SELECT SHARES
Applicable to 561,424 shares outstanding
(par value $0.001, unlimited shares authorized) $ 5,810,684
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $10.35
-----
-----
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $2,028,255
EXPENSES
Advisory Fee $ 133,208
Professional Fees and Expenses 45,073
Transfer Agent Fee 39,915
Registration Fees 32,318
Custodian Fees and Expenses 28,846
Administrative Services Fee 26,754
Amortization of Organization Expenses 9,503
Fund Services Fee 1,472
Administrative Fee 714
Trustees' Fees and Expenses 108
Shareholder Servicing Fee-Institutional Shares 20,775
Shareholder Servicing Fee-Select Shares 7,131
Miscellaneous 11,070
---------
Total Expenses 356,887
Less: Reimbursement of Expenses (151,366)
---------
NET EXPENSES 205,521
----------
NET INVESTMENT INCOME 1,822,734
NET REALIZED GAIN ON INVESTMENTS 104,215
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 584,893
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $2,511,842
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 23, 1996
FOR THE (COMMENCEMENT OF
FISCAL YEAR ENDED OPERATIONS) THROUGH
APRIL 30, 1998 APRIL 30, 1997
----------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,822,734 $ 151,759
Net Realized Gain (Loss) on Investments 104,215 (56,998)
Net Change in Unrealized Appreciation
(Depreciation) of Investments 584,893 (74,465)
----------------- -------------------
Net Increase in Net Assets Resulting from
Operations 2,511,842 20,296
----------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Institutional Shares (1,709,517) (151,425)
Select Shares (113,217) (334)
----------------- -------------------
Total Distributions from Net Investment
Income (1,822,734) (151,759)
----------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 64,023,412 15,594,184
Reinvestment of Dividends 964,307 54,112
Cost of Shares of Beneficial Interest Redeemed (28,680,279) (447,602)
----------------- -------------------
Net Increase from Shareholder Transactions 36,307,440 15,200,694
----------------- -------------------
Total Increase in Net Assets 36,996,548 15,069,231
NET ASSETS
Beginning of Period 15,094,231 25,000
----------------- -------------------
End of Period $ 52,090,779 $ 15,094,231
----------------- -------------------
----------------- -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES SELECT SHARES
------------------------------------ ------------------------------------
FOR THE PERIOD FOR THE PERIOD
DECEMBER 23, 1996 APRIL 21, 1997
FOR THE FISCAL (COMMENCEMENT OF FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH YEAR ENDED OPERATIONS) THROUGH
APRIL 30, 1998 APRIL 30, 1997 APRIL 30, 1998 APRIL 30, 1997
-------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.90 $ 10.00 $ 10.04 $ 10.00
-------------- ------------------- -------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.42 0.16 0.41 0.01
Net Realized and Unrealized Gain (Loss) on
Investments 0.30 (0.10) 0.31 0.04
-------------- ------------------- -------------- -------------------
Total from Investment Operations 0.72 0.06 0.72 0.05
-------------- ------------------- -------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.42) (0.16) (0.41) (0.01)
-------------- ------------------- -------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 10.20 $ 9.90 $ 10.35 $ 10.04
-------------- ------------------- -------------- -------------------
-------------- ------------------- -------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 7.35% 0.56%(a) 7.20% 0.51%(a)
Net Assets, End of Period (in thousands) $ 46,280 $ 14,793 $ 5,811 $ 302
Ratios to Average Net Assets
Expenses 0.45% 0.45%(b) 0.65% 0.62%(b)
Net Investment Income 4.11% 4.43%(b) 3.94% 4.52%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.34% 3.01%(b) 0.35% 0.55%(b)
Portfolio Turnover Rate 44% 40% 44% 40%
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
J. P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan California Bond 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 a no-load, non-diversified, 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 and Select Shares. Prior
to January 1, 1998, the names of the fund, trust, and classes were California
Bond Fund, JPM Series Trust, JPM Institutional Shares and JPM Pierpont Shares,
respectively. The investment objective of the fund is to provide high after-tax
total return for California residents consistent with moderate risk of capital.
The fund invests a significant amount of its assets in debt obligations issued
by political subdivisions and authorities in the State of California. The
issuer's ability to meet its obligations may be affected by economic and
political developments within the State of California. 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 value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked price on such exchanges. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the fund's trustees. Such procedures include the use of
independent pricing services, which use prices based upon yields or prices
of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
short-term securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
b) 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.
c) 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.
d) Substantially all of the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
e) The fund incurred organization expenses in the amount of $47,567. Morgan
Guaranty Trust Company of New York ("Morgan") has paid the organization
expenses of the fund. The fund has agreed to reimburse Morgan for these
costs which are being deferred and amortized on a straight-line basis over
a period not to exceed five years beginning with the commencement of
operations of the fund.
18
<PAGE>
J. P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
f) 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 Morgan. Under the terms
of the Agreement, the fund pays Morgan at an annual rate of 0.30% of the
fund's average daily net assets. For the fiscal year ended April 30, 1998,
such fees amounted to $133,208.
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
fiscal year ended April 30, 1998, the fee for these services amounted to
$714.
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 provided administrative services by Morgan. For the fiscal year
ended April 30, 1998, the fee for these services amounted to $26,754.
In addition, 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 0.45% and 0.65% of the average daily net assets of the
Institutional Shares and Select Shares, respectively, through August 31,
1998. For the fiscal year ended April 30, 1998, Morgan has agreed to
reimburse Institutional Shares and Select Shares, $141,455 and $9,911,
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
19
<PAGE>
J. P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
paid monthly at an annual rate of 0.05% and 0.25% for Institutional Shares
and Select Shares, respectively. For the fiscal year ended April 30, 1998,
the fee for these services amounted to $20,775 and $7,131 for
Institutional Shares and Select Shares, respectively.
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
$1,472 for the fiscal year ended April 30, 1998.
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 $300.
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
DECEMBER 23, 1996
FOR THE (COMMENCEMENT OF
FISCAL YEAR ENDED OPERATIONS) THROUGH
APRIL 30, 1998 APRIL 30, 1997
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Sold............... 5,551,027 56,738,740 1,531,745 $15,294,184
Reinvestment of Dividends........................ 83,691 858,434 5,423 53,778
Shares of Beneficial Interest Redeemed........... (2,592,118) (26,815,506) (45,122) (447,602)
---------- ------------ --------- -----------
Net Increase..................................... 3,042,600 $ 30,781,668 1,492,046 $14,900,360
---------- ------------ --------- -----------
---------- ------------ --------- -----------
</TABLE>
20
<PAGE>
J. P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
SELECT SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 21, 1997
(COMMENCEMENT OF
FOR THE OPERATIONS)
FISCAL YEAR ENDED THROUGH
APRIL 30, 1998 APRIL 30, 1997
---------------------- -----------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------ --------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Sold............... 699,192 $ 7,284,672 30,000 $300,000
Reinvestment of Dividends........................ 10,149 105,873 33 334
Shares of Beneficial Interest Redeemed........... (177,950) (1,864,773) -- --
-------- ----------- ------ --------
Net Increase..................................... 531,391 $ 5,525,772 30,033 $300,334
-------- ----------- ------ --------
-------- ----------- ------ --------
</TABLE>
From time to time, the fund may have a concentration of several shareholders
owning a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the fund.
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended April 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C> <C>
Municipal Obligations............................ $53,397,718 $18,142,410
U.S. Government.................................. -- 153,375
----------- -----------
$53,397,718 $18,295,785
----------- -----------
----------- -----------
</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 28, 1997, with unaffiliated lenders. The Agreement expires
on May 27, 1998, however, the fund as party to the Agreement has extended the
Agreement and will continue its participation therein for an additional 364 days
until May 26, 1999. The maximum borrowing under the Agreement is $150,000,000.
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 fund pays a commitment fee at an annual rate
of 0.065% on the unused portion of the committed amount which is allocated to
the funds in accordance with procedures established by their respective trustees
or directors. There were no outstanding borrowings pursuant to the Agreement as
of April 30, 1998.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan California Bond Fund
(formerly the California Bond 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 California Bond Fund
(one of the funds comprising the J.P. Morgan Series Trust, hereafter referred to
as the "fund") at April 30, 1998, the results of its operations for the year
then ended, the changes in its net assets for the year then ended and for the
period December 23, 1996 (commencement of operations) through April 30, 1997,
and the financial highlights for each of the periods presented, 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 audits. We conducted our
audits of these financial statements 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
audits, which included confirmation of securities at April 30, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
New York, New York
June 9, 1998
22
<PAGE>
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES:
SELECT SHARES (800) 521-5411
INSTITUTIONAL SHARES (800) 766-7722
J.P. MORGAN
CALIFORNIA
BOND FUND
ANNUAL REPORT
APRIL 30, 1998
