<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN CALIFORNIA BOND FUND
June 1, 1999
Dear Shareholder:
We are pleased to report the J.P. Morgan California Bond Fund delivered a strong
return for the fiscal year ended April 30, 1999, outperforming its competition,
as measured by the Lipper California Intermediate Municipal Debt Funds Average.
Our Institutional Shares returned 6.55% and our Select Shares returned 6.43%
during the period, compared with the Lipper Average of 6.19%. At the same time,
the fund trailed its benchmark, the Lehman Brothers 1-16 year Municipal Bond
Index, which rose 6.71%. Of course, the index return is exclusive of fees and
expenses.
The 30-day SEC yield as of April 30 was 3.67% for the Institutional Shares and
3.45% for the Select Shares, which is a tax equivalent yield of 6.08% and 5.71%,
respectively, at a 39.6% federal income tax rate.
The net asset value of the Institutional Shares on April 30, 1999, increased to
$10.40 from $10.20 on April 30, 1998, after distributions totaling approximately
$0.46 a share over the last 12 months. These distributions include $0.41 from
ordinary income, substantially all of which was exempt from federal income tax,
plus $0.02 in short term capital gains and $0.03 in long term capital gains.
Similarly, the net asset value of Select Shares rose to $10.57 from $10.35 over
the same period, after distributions totaling approximately $0.44 a share. These
distributions include $0.40 from ordinary income, substantially all of which was
exempt from federal income tax, plus nearly $0.02 in short term capital gains
and almost $0.02 in long term capital gains.
The report that follows includes an interview with Robert Meiselas, who with
Elaine Young manages the fund. This interview is designed to reflect what
happened during the reporting period, as well as provide an outlook for the
months ahead.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . .1 GLOSSARY OF TERMS . . . . . . . . 8
FUND PERFORMANCE. . . . . . . . .3 FUND FACTS AND STATEMENTS . . . . 9
PORTFOLIO MANAGER Q & A . . . . .5 FINANCIAL STATEMENTS. . . . . . .12
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions, please
telephone your Morgan representative or J.P. Morgan Funds Services 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
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 $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
$5,733,524 on April 30, 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 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 31, 1996 - APRIL 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- ------------------------------
THREE SIX ONE SINCE
AS OF APRIL 30, 1999 MONTHS MONTHS YEAR INCEPTION*
- ----------------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan California Bond Fund: Institutional Shares -0.57% 1.19% 6.55% 6.04%
Lehman Brothers 1-16 year Municipal Bond Index -0.11% 1.74% 6.71% 6.58%
Lipper California Intermediate Muni Debt Funds Avg. -0.25% 1.22% 6.19% 5.83%
AS OF MARCH 31, 1999
- ----------------------------------------------------------------------------------------- ------------------------------
J.P. Morgan California Bond Fund: Institutional Shares 0.87% 1.29% 5.96% 6.30%
Lehman Brothers 1-16 year Municipal Bond Index 0.86% 1.63% 5.97% 6.70%
Lipper California Intermediate Muni Debt Funds Avg. 0.84% 1.02% 5.52% 6.01%
</TABLE>
*THE INSTITUTIONAL SHARES COMMENCED OPERATIONS ON DECEMBER 23, 1996, AND HAVE
PROVIDED AN AVERAGE ANNUAL TOTAL RETURN OF 6.13% FROM THAT DATE THROUGH APRIL
30, 1999. FOR THE PURPOSE OF COMPARISON, THE "SINCE INCEPTION" RETURNS ARE
CALCULATED FROM DECEMBER 31, 1996, THE FIRST DATE WHEN DATA FOR THE FUND'S
BENCHMARK AND ITS LIPPER CATEGORY AVERAGE WERE AVAILABLE.
LEHMAN BROTHERS 1-16 YEAR MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH
MEASURES MUNICIPAL BOND MARKET PERFORMANCE. IT DOES NOT INCLUDE FEES OR
OPERATING EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF
CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC. IS A
LEADING SOURCE FOR MUTUAL FUND DATA.
3
<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 $11,436 on April 30, 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 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 31, 1996 - APRIL 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------------------------------------------------------------------------------------------
THREE SIX ONE SINCE
AS OF APRIL 30, 1999 MONTHS MONTHS YEAR INCEPTION*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan California Bond Fund: Select Shares -0.58% 1.11% 6.43% 5.92%
Lehman Brothers 1-16 Yr Municipal Bond Index -0.11% 1.74% 6.71% 6.58%
Lipper California Intermediate Muni Debt Funds Avg. -0.25% 1.22% 6.19% 5.83%
AS OF MARCH 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
J.P. Morgan California Bond Fund: Select Shares 0.74% 1.12% 5.74% 6.14%
Lehman Brothers 1-16 Yr Municipal Bond Index 0.86% 1.63% 5.97% 6.70%
Lipper California Intermediate Muni Debt Funds Avg. 0.84% 1.02% 5.52% 6.01%
</TABLE>
*REFLECTS THE PERFORMANCE OF THE FUND'S INSTITUTIONAL SHARES FROM DECEMBER 23,
1996 THROUGH APRIL 21, 1997 (COMMENCEMENT OF OPERATIONS), WHICH HAD A LOWER
EXPENSE RATIO. FOR THE PURPOSE OF COMPARISON, THE "SINCE INCEPTION" RETURNS ARE
CALCULATED FROM DECEMBER 31, 1996, THE FIRST DATE WHEN DATA FOR THE SELECT
SHARES'S BENCHMARK AND ITS LIPPER CATEGORY AVERAGE WERE AVAILABLE. THE SELECT
SHARES'S AVERAGE TOTAL RETURN SINCE THE COMMENCEMENT OF OPERATIONS ON APRIL 21,
1997 IS 7.01%.
LEHMAN BROTHERS 1-16 YEAR MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH
MEASURES MUNICIPAL BOND MARKET PERFORMANCE. IT DOES NOT INCLUDE FEES OR
OPERATING EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF
CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC. IS A
LEADING SOURCE FOR MUTUAL FUND DATA.
4
<PAGE>
PORTFOLIO MANAGER Q&A
This interview was conducted with Robert Meiselas, who with Elaine Young,
manages the J.P. Morgan California Bond Fund.
[PHOTO]
ELAINE YOUNG, vice president, is a portfolio manager with the U.S. Fixed Income
Group and is responsible for managing municipal bonds. In Ms. Young's previous
position at Morgan, she traded tax-exempt securities. Elaine joined Morgan in
1994 after five years of municipal trading experience at Scudder, Stevens, and
Clark. She graduated from New York University with a B.S. degree and an M.B.A.
in Finance. Elaine is also a Chartered Financial Analyst.
[PHOTO]
ROBERT MEISELAS, vice president, is a portfolio manager with the U.S. Fixed
Income Group and is responsible for managing municipal bonds, including
tax-exempt private placements. Mr. Meiselas is a C.P.A. and joined J.P. Morgan's
financial group in 1982, after having spent 10 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. He is a graduate
of St. John's University and has completed graduate work at Long Island
University in the field of taxation.
This interview was conducted on May 14, 1999 and represents both Bob and
Elaine's views on that date.
THE FUND'S NET ASSET VALUE ROSE AS INTEREST RATES DECLINED OVER THE 12 MONTHS
ENDED APRIL 30. WHAT HAPPENED?
RM: The market has gone through several phases. Last fall, for example, interest
rates fell sharply as investors sought the safety of U.S. Treasuries during the
Asian financial crisis. This spring, bond investors have markedly different
opinions about the future course of tax-exempt interest rates. The economy has
very strong forward momentum, powered by a surge in consumer spending amid
continued high employment.
WHAT SUPPORTED MUNICIPAL BOND PRICES OVER THE PERIOD?
RM: Favorable yields. On an after-tax basis, their yields typically exceeded
U.S. Treasuries for a taxpayer in the highest federal income tax bracket. For
example, to match a tax-free municipal yield of 4%, an investor paying the
highest federal tax rate would need a taxable yield of 6.6%, about three
quarters of a percentage point higher than the longest Treasury bond available.
In addition, municipal bond prices have been supported by continued inflows into
mutual bond funds and weak supply of the municipal bonds themselves.
5
<PAGE>
HOW HAS ALL OF THIS AFFECTED THE CALIFORNIA MUNICIPAL BOND MARKET?
RM: Profoundly. First, low inflation has reduced interest rates which stimulated
a strong rally in both the stock and bond markets. This added wealth effect
increased economic growth even further because consumer spending increased as
did demand for investments. California municipal bonds offer the highest
after-tax return available for fixed income investors who pay federal and state
income tax.
In addition, economic growth has increased tax revenues for jurisdictions and
reduced the need for local governmental authorities to borrow money in the bond
market. Consequently, the supply of California municipals dwindled and investors
perceive that credit risk is lower for those available. Both factors have led to
very high prices for California municipal bonds.
SO HOW DID YOU MANAGE THE FUND IN THIS RELATIVELY FAVORABLE MARKET?
RM: We were bullish on interest rates last year, and remained that way until
this past February. We had anticipated a lower supply, and expected the
continued absence of inflation as well as pent-up demand for tax-exempt bonds.
THEN SOMETHING CHANGED?
RM: By February, the economy remained so strong that investors started to fear
that interest rates would rise. Also, many of the foreign economic problems that
had earlier stimulated a flight to quality had begun to recede.
WHAT DID YOU DO?
RM: We moved from mildly bullish to a more neutral position. We had held an
average maturity that was slightly longer than our seven-year benchmark, so we
moved back to seven years. As noted before, the U.S. economy is still very
strong. In addition, the tax-exempt municipal bond market is not technically as
favorable as it was months ago. Tax-exempt bonds are still inexpensive when
compared to U.S. Treasuries, but they are not as inexpensive as they were
earlier.
HOW WOULD YOU DESCRIBE YOUR STRATEGY?
RM: We're conservative. We try to provide an efficient and attractive after-tax
performance in a stable fund. In today's market, that means that we are biased
toward premium, non-callable bonds, because they help provide a cushion in
volatile markets. We have been buying them when they are reasonably priced and
structured to meet our investment needs.
6
<PAGE>
We are also interested in bonds that carry somewhat lower credit ratings than
our AA average. Prices for some lower investment grade bonds have cheapened, so
we are looking at them opportunistically. We'll look at bonds rated A or lower,
as we find them. However, fewer and fewer California bonds are lower-rated
because most new bonds sold in today's market are insured.
HAS THIS STRATEGY WORKED?
RM: Yes, we think our performance was good over the 12 months ended April 30. By
extending duration last fall, we benefited from falling interest rates, and when
rates rose suddenly in February, we shortened maturities. Our structure also
helped. We stayed away from lower quality bonds that suffered as spreads
widened. We have a favorable Sharpe ratio - the measure of the risk we are
willing to accept versus that of riskless assets.
WHAT IS YOUR OUTLOOK?
RM: We expect the U.S. economy will remain strong over the next few months, and
municipal bond supply typically increases during the second quarter. However,
there has been continued cash flow into municipal bond funds and there is
pent-up demand for municipal bonds. While a strong economy, global recovery, and
added supply suggest that interest rates may rise and municipal bond prices may
weaken, continued investor interest in municipals is apt to stabilize the
market. These factors can easily shift in the months ahead. Consequently, we are
neutral about the outlook for the municipal market and have positioned the
portfolio accordingly.
7
<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.
8
<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 INVESTMENT OPERATIONS
INSTITUTIONAL SHARES: 12/23/96
SELECT SHARES: 4/21/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/99
INSTITUTIONAL SHARES: $64,102,028
SELECT SHARES: $17,391,073
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/99
$81,493,101
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/13/99
EXPENSE RATIOS
INSTITUTIONAL SHARES: 0.49%
SELECT SHARES: 0.65%
The current annualized expense ratios cover shareholders' expenses for custody,
tax reporting, investment advisory and shareholder services, after
reimbursement. The fund is no-load and does not charge any sales, redemption, or
exchange fees. 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, 1999
SECTOR ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
<TABLE>
<S> <C>
INSURED 61.7%
REVENUE BOND 23.5%
PRIVATE PLACEMENTS 8.2%
SHORT-TERM/OTHER 3.9%
GENERAL OBLIGATION 2.7%
</TABLE>
30-DAY SEC YIELDS*
INSTITUTIONAL SHARES: 3.67%
SELECT SHARES: 3.45%
DURATION
6.0 YEARS
QUALITY PROFILE
<TABLE>
<S> <C>
AAA** 65.06%
AA 16.17%
A 2.10%
OTHER 16.67%
</TABLE>
* 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.
9
<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 MORE OR LESS THAN ORIGINAL
COST.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. 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.
10
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (95.0%)
CALIFORNIA (92.7%)
$ 2,500 Anaheim Public Financing Authority,
(Public Improvements Project, Lease
Revenue, Series C), FSA Insured....... RB Aaa/AAA 09/01/10 6.000% $ 2,852,800
1,345 Beverly Hills Public Financing
Authority, (Refunding, Lease Revenue,
Series A), MBIA Insured............... RB Aaa/AAA 06/01/01 4.000 1,359,378
1,000 California.............................. GO Aa3/A+ 04/01/03 6.800 1,109,420
3,440 California Department of Water Systems,
(Central Valley Project Revenue,
Series Q)............................. RB Aa2/AA 12/01/07 6.000 3,903,987
1,000 California Educational Facilities
Authority, (Claremont University,
Series 1998-C, due 05/01/28).......... PP NR/NR 05/01/01(a) 4.600 1,008,920
1,165 California Educational Facilities
Authority, (Refunding, University of
Southern California, Series A)........ RB Aa2/AA 10/01/06 5.600 1,280,382
525 California Educational Facilities
Authority, (University and College
Projects, Series B)................... RB Baa2/NR 04/01/07 6.750 599,539
1,000 California Health Facilities Finance
Authority, (Callable, Stanford Health
Care, Series B, due 11/15/09)......... RB Aaa/AAA 11/15/08(a) 5.000 1,054,040
1,890 California Health Facilities Finance
Authority, (Refunding, Catholic
Healthcare West, Series A), MBIA
Insured............................... RB Aaa/AAA 07/01/06 5.500 2,053,844
1,500 California State Public Works Board,
(Correctional Facility Improvements,
Lease Revenue, Series E).............. RB A1/A 06/01/09 6.000 1,692,960
5,570 California State University,
(Polytechnic University, Campus Energy
Project).............................. PP NR/NR 03/15/14 5.055 5,619,016
1,280 California Statewide Communities
Development Authority, (St. Joseph
Health System)........................ RB Aa3/AA 07/01/06 5.500 1,381,069
2,000 Contra Costa Transportation Authority,
(Sales Tax Revenue, Series A), FGIC
Insured............................... RB Aaa/AAA 03/01/03 5.500 2,126,380
600 La Quinta Redevelopment Agency,
(Refunding, Project Area No. 1, Tax
Allocation), MBIA Insured............. RB Aaa/AAA 09/01/11 7.300 757,434
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,000 Long Beach Harbor, (Callable, due
05/15/06), MBIA Insured............... RB Aaa/AAA 05/15/05(a) 6.000% $ 1,112,440
1,090 Long Beach Harbor, (Refunding, Series
A), FGIC Insured...................... RB Aaa/AAA 05/15/04 5.500 1,166,518
2,000 Los Angeles Community Redevelopment
Agency, (Refunding, Tax Allocation,
Central Business District)............ RB NR/BBB+ 11/15/01 5.000 2,054,380
1,785 Los Angeles County Metropolitan Transit
Authority, (Refunding, Sales Tax
Revenue, Property C-2nd, Series A),
AMBAC Insured......................... RB Aaa/AAA 07/01/10 5.500 1,955,949
1,000 Los Angeles County Public Works
Financing Authority, (Lease Revenue,
Multiple Capital Facilities, Project
V, Series B), AMBAC Insured........... RB Aaa/AAA 12/01/07 6.000 1,133,330
1,500 Los Angeles County Public Works
Financing Authority, (Regional Park &
Open Space District, Series A)........ RB Aa3/AA 10/01/05 5.250 1,610,115
1,000 Los Angeles County Transportation,
(Prerefunded, Sales Tax Revenue,
Series A, due 07/01/20)............... RB Aaa/AA- 07/01/01(a) 6.750 1,086,940
1,000 Los Angeles County Transportation,
(Refunding, Sales Tax Revenue, Series
B), FGIC Insured...................... RB Aaa/AAA 07/01/02 5.875 1,067,540
1,000 Los Angeles County, (Prerefunded,
Correctional Facility Improvements,
due 09/01/13), MBIA Insured........... GO Aaa/AAA 09/01/00(a) 6.500 1,061,510
500 Los Angeles Department of Water and
Power, (Callable, Electric Power and
Light Improvements and Revenues, due
04/01/32)............................. RB Aa3/A+ 04/01/02(a) 6.750 544,955
2,000 Los Angeles Municipal Improvements,
(Sanitation Equipment Charge Revenue,
Series A), FSA Insured................ RB Aaa/AAA 02/01/03 5.500 2,123,780
1,000 Los Angeles Unified School District,
(Series A), FGIC Insured.............. GO Aaa/AAA 07/01/10 6.000 1,139,490
1,000 Los Angeles Unified School District,
(Series B), FGIC Insured.............. GO Aaa/AAA 07/01/08 5.250 1,078,610
1,250 Los Angeles, (Refunding, Series A), FGIC
Insured............................... GO Aaa/AAA 09/01/11 5.250 1,337,512
1,000 Metropolitan Water District, (Refunding,
Southern California Waterworks
Revenue, Series A).................... RB Aa2/AA 07/01/07 5.250 1,076,290
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 2,000 Metropolitan Water District, (Refunding,
Southern California Waterworks
Revenue, Series B), MBIA Insured...... RB Aaa/AAA 07/01/03 5.500% $ 2,138,060
2,000 Orange County Public Financing
Authority, (Refunding, Waste
Management Systems Revenue), AMBAC
Insured............................... RB Aaa/NR 12/01/09 5.750 2,225,520
1,500 Orange County Transportation Authority,
(Refunding, Sales Tax Revenue, Measure
M, First Series, Series A)............ RB Aa3/AA+ 02/15/05 5.250 1,596,300
1,300 Orange County Transportation Authority,
(Sales Tax Revenue, Measure M, First
Series), MBIA-IBC Insured............. RB Aaa/AAA 02/15/09 6.000 1,474,291
2,100 Orange County, (Refunding, Airport
Revenue), MBIA Insured................ RB Aaa/AAA 07/01/03 5.500 2,236,626
595 Palmdale Civic Authority, (Civic Center
Refinancing, Series A), MBIA
Insured............................... RB Aaa/AAA 07/01/07 5.500 650,609
1,250 Riverside County Transportation
Commission, (Refunding, Sales Tax
Revenue, Series A), FGIC Insured...... RB Aaa/AAA 06/01/09 6.000 1,421,725
1,000 Sacramento Municipal Utility,
(Refunding, Electric Power and Light
Revenue, Series L), MBIA Insured...... RB Aaa/AAA 07/01/01 5.000 1,031,680
1,750 San Bernardino County Transportation
Authority, (Callable, Sales Tax
Revenue, Series A, due 03/01/09), FSA
Insured............................... RB Aaa/AAA 03/01/08(a) 5.000 1,846,443
1,975 San Diego Public Facilities Financing
Authority, (Sewer Revenue, Series B),
FGIC Insured.......................... RB Aaa/AAA 05/15/02 4.250 2,012,071
1,850 San Francisco City & County Airport
Commission, (International Airport
Revenue, Second Series, Issue 16A),
FSA Insured........................... RB Aaa/AAA 05/01/06 5.500 2,001,349
2,510 San Francisco City & County Airport
Commission, (International Airport
Revenue, Second Series, Issue 18A),
MBIA Insured.......................... RB Aaa/AAA 05/01/06 6.000 2,790,894
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,385 San Jose Redevelopment Agency, (Tax
Allocation, Merged Area Redevelopment
Project), AMBAC Insured............... RB Aaa/AAA 08/01/07 4.750% $ 1,443,627
1,250 Santa Margarita/Dana Point Authority,
(Series A), AMBAC Insured............. RB Aaa/AAA 08/01/06 5.250 1,344,100
1,000 Santa Monica-Malibu Unified School
District, (Refunding)................. GO Aa3/NR 08/01/08 5.000 1,060,210
2,800 Southern California Public Power
Authority, (Refunding, Power Project
Revenue, Palo Verde Project, Series
A), FSA Insured....................... RB Aaa/AAA 07/01/01 5.000 2,888,704
1,000 Stockton Community Facilities, (No.
90-2-Brookside Estates, Special Tax
Revenue).............................. RB NR/NR 08/01/02 5.200 1,015,990
-----------
TOTAL CALIFORNIA.................... 75,526,727
-----------
WASHINGTON (2.3%)
1,700 Washington Public Power Supply Systems,
(Refunding, Nuclear Project No. 2,
Series A), AMBAC Insured.............. RB Aaa/AAA 07/01/05 6.000 1,869,983
-----------
TOTAL LONG TERM INVESTMENTS (COST $75,923,930)................................. 77,396,710
-----------
SHORT-TERM INVESTMENTS (3.8%)
CALIFORNIA (2.9%)
150 California Pollution Control Financing
Authority, (Callable, PCR, Southern
California Edison Project, Series B,
due 02/28/08)......................... VRDN VMIG1/A-1 05/03/99(a) 4.350 150,000
800 California State Economic Development
Financing Authority, (due 04/01/08)... VRDN VMIG1/A-1+ 05/03/99(a) 4.300 800,000
400 Chula Vista, (Callable, IDR, San Diego
Gas & Electric Project, Series A, due
07/01/21)............................. VRDN VMIG1/A-1 05/03/99(a) 4.200 400,000
1,000 Sonoma County........................... TRAN NR/SP-1+ 02/01/00 3.500 1,002,200
-----------
2,352,200
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL S&P
AMOUNT SECURITY RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
GEORGIA (0.0%)
$ 50 Putnam County Development Authority,
(Callable, PCR, Georgia Power Co.,
Series 1, due 06/01/23)............... VRDN VMIG1/NR 05/03/99(a) 4.250% $ 50,000
-----------
LOUISIANA (0.4%)
300 Louisiana Public Facilities Authority,
(Callable, due 12/01/15), LOC -
Deutsche Bank A.G..................... VRDN P-1/NR 05/03/99(a) 4.250 300,000
-----------
NEW YORK (0.1%)
100 New York City, (Series B, Subseries B4,
due 08/15/23), MBIA Insured........... VRDN VMIG1/A-1+ 05/03/99(a) 4.250 100,000
-----------
OTHER (0.4%)
100 Puttable Floating Option, (Tax Exempt
Receipts, Callable, Series SG P-5, due
07/02/27), LIQ FAC-Societe Generale... VRDN NR/A-1+c 05/06/99(a) 3.430 100,000
230 Puttable Floating Option, (Tax Exempt
Receipts, Callable, Series SG P-6, due
01/01/28), LIQ FAC-Societe Generale... VRDN NR/A-1+c 05/06/99(a) 3.430 230,000
-----------
330,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $3,132,699)..................................... 3,132,200
-----------
TOTAL INVESTMENTS (COST $79,056,629)(98.8%)........................................ 80,528,910
OTHER ASSETS IN EXCESS OF LIABILITIES (1.2%)....................................... 964,191
-----------
NET ASSETS (100.0%)................................................................ $81,493,101
-----------
-----------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $79,056,629 for federal income tax
purposes at April 30, 1999, the aggregate gross unrealized appreciation and
depreciation was $1,537,171 and $64,890, respectively, resulting in net
unrealized appreciation of investments of $1,472,281.
(a) The date listed under the heading maturity date represents an optional
tender date or the next interest rate reset date, which may vary. The actual
maturity date is indicated in the security description.
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
AMBAC - Ambac Indemnity Corp.
FGIC - Financial Guaranty Insurance Company.
FSA - Financial Securities Assurance.
GO - General Obligation Bond.
IBC - IBC Financial Data, Inc.
IDR - Industrial Development Revenue.
LIQ FAC - Liquidity Facility.
LOC - Letter of Credit.
MBIA - Municipal Bond Investors Assurance Group.
NR - Not Rated.
PCR - Pollution Control Revenue.
PP - Private Placement.
RB - Revenue Bond.
TRAN - Tax Revenue Anticipation Note.
VRDN - Variable Rate Demand Note.
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $79,056,629) $80,528,910
Interest Receivable 1,150,196
Deferred Organization Expenses 19,026
Receivable for Expense Reimbursements 11,745
Prepaid Trustees' Fees 133
Receivable for Fund Shares Sold 51
Prepaid Expenses and Other Assets 350
-----------
Total Assets 81,710,411
-----------
LIABILITIES
Due to Custodian 11,288
Dividends Payable to Shareholders 130,046
Advisory Fee Payable 19,807
Shareholder Servicing Fee Payable 8,700
Administrative Services Fee Payable 3,401
Administration Fee Payable 67
Fund Services Fee Payable 31
Accrued Expenses 43,970
-----------
Total Liabilities 217,310
-----------
NET ASSETS $81,493,101
-----------
-----------
INSTITUTIONAL SHARES
Applicable to 6,161,640 shares outstanding
(par value $0.001, unlimited shares authorized) $64,102,028
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $10.40
-----
-----
SELECT SHARES
Applicable to 1,645,635 shares outstanding
(par value $0.001, unlimited shares authorized) $17,391,073
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $10.57
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $79,920,067
Accumulated Net Realized Gain on Investments 100,753
Net Unrealized Appreciation of Investments 1,472,281
-----------
Net Assets $81,493,101
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $2,957,041
EXPENSES
Advisory Fee $ 200,927
Professional Fees and Expenses 40,931
Transfer Agent Fee 37,735
Administrative Services Fee 36,727
Custodian Fees and Expenses 34,867
Registration Fees 31,595
Amortization of Organization Expense 7,167
Fund Services Fee 1,623
Trustees' Fees and Expenses 1,004
Administrative Fee 747
Shareholder Servicing Fee-Institutional Shares 46,812
Shareholder Servicing Fee-Select Shares 35,787
Miscellaneous 24,329
---------
Total Expenses 500,251
Less: Reimbursement of Expenses (149,750)
---------
NET EXPENSES 350,501
----------
NET INVESTMENT INCOME 2,606,540
NET REALIZED GAIN ON INVESTMENTS 385,658
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 961,853
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,954,051
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
APRIL 30, 1999 APRIL 30, 1998
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 2,606,540 $ 1,822,734
Net Realized Gain on Investments 385,658 104,215
Net Change in Unrealized Appreciation of
Investments 961,853 584,893
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 3,954,051 2,511,842
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Institutional Shares (2,067,761) (1,709,517)
Select Shares (538,779) (113,217)
-------------- --------------
Total Distributions from Net Investment Income (2,606,540) (1,822,734)
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED
GAINS
Institutional Shares (271,251) --
Select Shares (60,871) --
-------------- --------------
Total Distributions from Net Realized Gains (332,122) --
-------------- --------------
Total Distributions to Shareholders (2,938,662) (1,822,734)
-------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 49,823,336 64,023,412
Reinvestment of Dividends and Distributions 1,688,379 964,307
Cost of Shares of Beneficial Interest Redeemed (23,124,782) (28,680,279)
-------------- --------------
Net Increase from Shareholder Transactions 28,386,933 36,307,440
-------------- --------------
Total Increase in Net Assets 29,402,322 36,996,548
NET ASSETS
Beginning of Fiscal Year 52,090,779 15,094,231
-------------- --------------
End of Fiscal Year $ 81,493,101 $ 52,090,779
-------------- --------------
-------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<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
---------------------------------------
FOR THE FISCAL FOR THE PERIOD
YEAR ENDED DECEMBER 23, 1996
APRIL 30, (COMMENCEMENT OF
----------------- OPERATIONS) THROUGH
1999 1998 APRIL 30, 1997
------- ------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.20 $ 9.90 $ 10.00
------- ------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.41 0.42 0.16
Net Realized and Unrealized Gain on Investments 0.25 0.30 (0.10)
------- ------- -------------------
Total from Investment Operations 0.66 0.72 0.06
------- ------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.41) (0.42) (0.16)
Net Realized Gain (0.05) -- --
------- ------- -------------------
Total Distributions to Shareholders (0.46) (0.42) (0.16)
------- ------- -------------------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.20 $ 9.90
------- ------- -------------------
------- ------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 6.55% 7.35% 0.56%(a)
Net Assets, End of Period (in thousands) $64,102 $46,280 $ 14,793
Ratios to Average Net Assets
Net Expenses 0.49% 0.45% 0.45%(b)
Net Investment Income 3.92% 4.11% 4.43%(b)
Expenses without Reimbursement 0.71% 0.34% 3.01%(b)
Portfolio Turnover 40% 44% 40%
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
SELECT SHARES
--------------------------------------
FOR THE FISCAL FOR THE PERIOD
YEAR ENDED APRIL APRIL 21, 1997
30, (COMMENCEMENT OF
---------------- OPERATIONS) THROUGH
1999 1998 APRIL 30, 1997
------- ------ -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.35 $10.04 $ 10.00
------- ------ -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.40 0.41 0.01
Net Realized and Unrealized Gain on Investments 0.26 0.31 0.04
------- ------ -------------------
Total from Investment Operations 0.66 0.72 0.05
------- ------ -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.40) (0.41) (0.01)
Net Realized Gain (0.04) -- --
------- ------ -------------------
Total Distributions to Shareholders (0.44) (0.41) (0.01)
------- ------ -------------------
NET ASSET VALUE, END OF PERIOD $ 10.57 $10.35 $ 10.04
------- ------ -------------------
------- ------ -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 6.43% 7.20% 0.51%(a)
Net Assets, End of Period (in thousands) $17,391 $5,811 $ 302
Ratios to Average Net Assets
Net Expenses 0.65% 0.65% 0.62%(b)
Net Investment Income 3.76% 3.94% 4.52%(b)
Expenses without Reimbursement 0.87% 0.35% 0.55%(b)
Portfolio Turnover 40% 44% 40%
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
- --------------------------------------------------------------------------------
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. 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 prices on such exchanges. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Independent pricing services procedures may include the use of 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. 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. 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 shareholder's of net
realized capital gains, if any, are declared and paid annually.
e) The fund incurred organization expenses in the amount of $39,030. These
costs were deferred and are being amortized on a straight-line basis over
a five year period from the commencement of operations.
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.
23
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 28, 1998, the fund had an Investment Advisory Agreement
with Morgan Guaranty Trust Company of New York ("Morgan"), a wholly owned
subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the
terms of the agreement, the fund paid Morgan at an annual rate of 0.30% of
the fund's average daily net assets. Effective October 28, 1998, the
fund's investment advisor is J.P. Morgan Investment Management
Inc.("JPMIM"), a wholly owned subsidiary of J.P. Morgan and an affiliate
of Morgan, and the terms of the agreement remained the same. For the
fiscal year ended April 30, 1999, such fees amounted to $200,927.
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, 1999, the fee for these services amounted to
$747.
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 registered investment companies for which
JPMIM acts as investment advisor in accordance with the following annual
schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess
of $7 billion, less the complex-wide fees payable to 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 services. For the
fiscal year ended April 30, 1999, the fee for these services amounted to
$36,727.
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 0.50% and 0.65% of the average daily net assets of the Institutional
Shares and Select Shares, respectively. Prior to August 1, 1998, the
percentage for the Institutional Shares was 0.45%. For the fiscal year
ended April 30, 1999, J.P. Morgan has agreed to reimburse Institutional
Shares and Select Shares, $118,189 and $31,561, respectively, for expenses
under this agreement. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.
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. This rate for the Institutional Shares was
0.05% of the average daily assets
24
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
of the fund from May 1, 1998 through July 31, 1998. Effective August 1,
1998, the rate was increased to 0.10%. The rate for Select Shares is
0.25%. For the fiscal year ended April 30, 1999, the fee for these
services amounted to $46,812 and $35,787 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
$1,623 for the fiscal year ended April 30, 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 $300.
25
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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 FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
APRIL 30, 1999 APRIL 30, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold...................................... 3,085,988 $ 32,094,023 5,551,027 $ 56,738,740
Reinvestment of dividends and distributions...... 106,489 1,113,413 83,691 858,434
Shares redeemed.................................. (1,567,983) (16,200,972) (2,592,118) (26,815,506)
---------- ------------ ---------- ------------
Net Increase..................................... 1,624,494 $ 17,006,464 3,042,600 $ 30,781,668
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
SELECT SHARES
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED ENDED
APRIL 30, 1999 APRIL 30, 1998
----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold...................................... 1,681,761 $17,729,313 699,192 $ 7,284,672
Reinvestment of dividends and distributions...... 54,161 574,966 10,149 105,873
Shares redeemed.................................. (651,711) (6,923,810) (177,950) (1,864,773)
--------- ----------- -------- -----------
Net Increase..................................... 1,084,211 $11,380,469 531,391 $ 5,525,772
--------- ----------- -------- -----------
--------- ----------- -------- -----------
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended April 30, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C> <C>
Municipal Obligations............................ $53,632,769 $25,944,818
</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 maximum borrowing
under the Agreement was $150,000,000. The Agreement expired on May 26, 1999,
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 23,
2000. The maximum borrowing under the current 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. Prior to May 26, 1999 the funds paid a commitment fee
at an annual rate of 0.065% on the unused portion of the committed amount; under
the current Agreement, the commitment fee has increased to an annual rate of
0.085% on the unused portion of the committed amount. The commitment fee 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 at April 30, 1999.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan 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, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in the
period then ended and for the period December 23, 1996 (commencement of
operations) to April 30, 1997, 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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
June 14, 1999
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J.P. Morgan
California
Bond Fund
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
ANNUAL REPORT
APRIL 30, 1999
IM404-MI
