<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN CALIFORNIA BOND FUND
June 1, 2000
Dear Shareholder:
We are pleased to report the J.P. Morgan California Bond Fund outperformed
its competition, as measured by the Lipper California Intermediate Municipal
Debt Funds Average for the fiscal year ended April 30, 2000. Our
Institutional Shares returned 0.70% and our Select Shares returned 0.60%
during the period, compared with the Lipper Average of -0.38%. At the same
time, the fund also outperformed its benchmark, the Lehman Brothers 1-16 year
Municipal Bond Index, which returned 0.48%.
The 30-day SEC yield as of April 30 was 4.54% for the Institutional Shares
and 4.40% for the Select Shares, which is a tax equivalent yield of 7.52% and
7.28%, respectively, at a 39.6% federal income tax rate (see page nine).
The net asset value of the Institutional Shares on April 30, 2000, decreased
to $10.03 from $10.40 on April 30, 1999, after distributions totaling
approximately $0.43 a share over the last 12 months. These distributions
include $0.42 from ordinary income, substantially all of which was exempt
from federal income tax, and $0.01 in long term capital gains.
Similarly, the net asset value of Select Shares fell to $10.20 from $10.57
over the same period, after distributions totaling approximately $0.42 a
share. These distributions include $0.41 from ordinary income, substantially
all of which was exempt from federal income tax, and $0.01 in long term
capital gains.
The report that follows includes an interview with Benjamin Thompson, who
with Robert Meiselas, 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 OF CONTENTS
LETTER TO THE SHAREHOLDERS......... 1 GLOSSARY OF TERMS ................. 8
FUND PERFORMANCE................... 3 FUND FACTS AND HIGHLIGHTS.......... 9
PORTFOLIO MANAGER Q & A............ 5 FINANCIAL STATEMENTS...............12
----------------------------------------------------------------------------
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
Fund 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 $5,773,500 on April 30, 2000.
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, 2000
[GRAPHIC]
<TABLE>
<CAPTION>
LIPPER CALIF
LEHMAN 1-16YR INTERMED MUNI
JPM CAL BOND 10,000 MUNI BOND 10,000 DEBT 10,000
------------ ------------- -------------
PLOT POINTS PLOT POINTS PLOT POINTS
---------------- ---------------- ---------------------
12/31/96 10,000 12/31/96 10,000 12/31/96 10,000
---------------- ---------------- ---------------------
<S> <C> <S> <C> <S> <C>
1/31/97 9,980 1/31/97 10,039 1/31/97 10,019
2/28/97 10,065 2/28/97 10,121 2/28/97 10,086
3/31/97 9,966 3/31/97 10,007 3/31/97 9,987
4/30/97 10,024 4/30/97 10,071 4/30/97 10,038
5/31/97 10,168 5/31/97 10,199 5/31/97 10,166
6/30/97 10,262 6/30/97 10,295 6/30/97 10,254
7/31/97 10,517 7/31/97 10,530 7/31/97 10,487
8/31/97 10,420 8/31/97 10,455 8/31/97 10,406
9/30/97 10,535 9/30/97 10,564 9/30/97 10,509
10/31/97 10,559 10/31/97 10,621 10/31/97 10,543
11/30/97 10,604 11/30/97 10,666 11/30/97 10,585
12/31/97 10,761 12/31/97 10,797 12/31/97 10,710
1/31/98 10,837 1/31/98 10,904 1/31/98 10,812
2/28/98 10,841 2/28/98 10,913 2/28/98 10,820
3/31/98 10,814 3/31/98 10,919 3/31/98 10,802
4/30/98 10,746 4/30/98 10,875 4/30/98 10,742
5/31/98 10,905 5/31/98 11,027 5/31/98 10,890
6/30/98 10,930 6/30/98 11,067 6/30/98 10,918
7/31/98 10,954 7/31/98 11,097 7/31/98 10,951
8/31/98 11,136 8/31/98 11,254 8/31/98 11,114
9/30/98 11,308 9/30/98 11,385 9/30/98 11,276
10/31/98 11,311 10/31/98 11,405 10/31/98 11,263
11/30/98 11,336 11/30/98 11,436 11/30/98 11,294
12/31/98 11,350 12/31/98 11,472 12/31/98 11,301
1/31/99 11,503 1/31/99 11,617 1/31/99 11,432
2/28/99 11,432 2/28/99 11,566 2/28/99 11,379
3/31/99 11,434 3/31/99 11,571 3/31/99 11,396
4/30/99 11,436 4/30/99 11,604 4/30/99 11,407
5/31/99 11,363 5/31/99 11,550 5/31/99 11,338
6/30/99 11,203 6/30/99 11,403 6/30/99 11,182
7/31/99 11,281 7/31/99 11,465 7/31/99 11,243
8/31/99 11,250 8/31/99 11,436 8/31/99 11,194
9/30/99 11,298 9/30/99 11,469 9/30/99 11,234
10/31/99 11,226 10/31/99 11,413 10/31/99 11,140
11/30/99 11,319 11/30/99 11,512 11/30/99 11,238
12/31/99 11,261 12/31/99 11,465 12/31/99 11,157
1/31/00 11,267 1/31/00 11,446 1/31/00 11,164
2/29/00 11,375 2/29/00 11,522 2/29/00 11,260
3/31/00 11,553 3/31/00 11,689 3/31/00 11,436
4/30/00 11,505 4/30/00 11,660 4/30/00 11,369
15.05% 41 16.60%
4.30% 4.72%
-100.00% -100.00% -100.00%
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------ ----------------------------
THREE SIX ONE THREE SINCE
AS OF APRIL 30, 2000 MONTHS MONTHS YEAR YEARS INCEPTION*
---------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan California Bond Fund: Institutional Shares 2.07% 2.47% 0.70% 4.82% 4.41%
Lehman Brothers 1-16 year Municipal Bond Index** 1.87% 2.17% 0.48% 5.01% 4.72%
Lipper California Intermediate Muni Debt Funds Avg.*** 1.85% 2.07% -0.38% 4.20% 3.87%
AS OF MARCH 31, 2000
---------------------------------------------------------------------------------- -------------------------------
J.P. Morgan California Bond Fund: Institutional Shares 2.55% 2.23% 1.05% 5.17% 4.66%
Lehman Brothers 1-16 year Municipal Bond Index** 1.96% 1.92% 1.02% 5.32% 4.92%
Lipper California Intermediate Muni Debt Funds Avg.*** 2.49% 1.78% 0.26% 4.60% 4.20%
</TABLE>
* THE INSTITUTIONAL SHARES COMMENCED OPERATIONS ON DECEMBER 23, 1996, AND
HAVE PROVIDED AN AVERAGE ANNUAL TOTAL RETURN OF 4.48% FROM THAT DATE THROUGH
APRIL 30, 2000. FOR THE PURPOSE OF COMPARISON, THE "SINCE INCEPTION" RETURNS
ARE CALCULATED FROM DECEMBER 31, 1996, THE FIRST DATE WHEN DATA FOR THE
FUND'S BENCHMARK AND ITS LIPPER CATEGORY AVERAGE WERE AVAILABLE.
** 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.
*** DESCRIBES THE AVERAGE TOTAL RETURN FOR ALL FUNDS IN THE INDICATED LIPPER
CATEGORY, AS DEFINED BY LIPPER INC., AND DOES NOT TAKE INTO ACCOUNT
APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 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>
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 $11,505 on April 30, 2000.
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, 2000
[GRAPHIC]
<TABLE>
<CAPTION>
LIPPER CALIF
INST CAL LEHMAN 1-16YR INTERMED MUNI
BOND 5,000,000 MUNI BOND 5,000,000 DEBT 5,000,000
------------- ------------- -------------
PLOT POINTS PLOT POINTS PLOT POINTS
------------------ ----------------------- --------------------
12/31/96 5,000,000 12/31/96 5,000,000 12/31/96 5,000,000
------------------ ----------------------- --------------------
<S> <C> <S> <C> <S> <C>
1/31/97 4,990,048 1/31/97 5,019,500 1/31/97 5,009,500
2/28/97 5,032,462 2/28/97 5,060,660 2/28/97 5,043,064
3/31/97 4,983,191 3/31/97 5,003,474 3/31/97 4,993,642
4/30/97 5,012,473 4/30/97 5,035,497 4/30/97 5,019,109
5/31/97 5,085,991 5/31/97 5,099,397 5/31/97 5,082,852
6/30/97 5,134,458 6/30/97 5,147,331 6/30/97 5,127,073
7/31/97 5,259,212 7/31/97 5,265,205 7/31/97 5,243,457
8/31/97 5,210,460 8/31/97 5,227,296 8/31/97 5,203,083
9/30/97 5,274,831 9/30/97 5,282,182 9/30/97 5,254,593
10/31/97 5,282,295 10/31/97 5,310,706 10/31/97 5,271,408
11/30/97 5,305,738 11/30/97 5,333,011 11/30/97 5,292,493
12/31/97 5,386,159 12/31/97 5,398,607 12/31/97 5,354,945
1/31/98 5,425,204 1/31/98 5,452,053 1/31/98 5,405,817
2/28/98 5,427,979 2/28/98 5,456,415 2/28/98 5,410,142
3/31/98 5,414,762 3/31/98 5,459,689 3/31/98 5,400,944
4/30/98 5,380,814 4/30/98 5,437,304 4/30/98 5,371,239
5/31/98 5,462,647 5/31/98 5,513,590 5/31/98 5,444,825
6/30/98 5,475,818 6/30/98 5,533,439 6/30/98 5,458,982
7/31/98 5,488,729 7/31/98 5,548,379 7/31/98 5,475,359
8/31/98 5,576,113 8/31/98 5,627,166 8/31/98 5,556,941
9/30/98 5,664,075 9/30/98 5,692,441 9/30/98 5,638,073
10/31/98 5,666,255 10/31/98 5,702,687 10/31/98 5,631,307
11/30/98 5,684,616 11/30/98 5,718,085 11/30/98 5,647,075
12/31/98 5,687,955 12/31/98 5,735,811 12/31/98 5,650,463
1/31/99 5,766,166 1/31/99 5,808,655 1/31/99 5,716,008
2/28/99 5,730,310 2/28/99 5,783,097 2/28/99 5,689,715
3/31/99 5,737,332 3/31/99 5,785,411 3/31/99 5,698,249
4/30/99 5,733,524 4/30/99 5,802,188 4/30/99 5,703,378
5/31/99 5,702,161 5/31/99 5,774,918 5/31/99 5,669,157
6/30/99 5,621,126 6/30/99 5,701,577 6/30/99 5,590,923
7/31/99 5,661,357 7/31/99 5,732,365 7/31/99 5,621,673
8/31/99 5,645,935 8/31/99 5,718,034 8/31/99 5,596,938
9/30/99 5,670,807 9/30/99 5,734,616 9/30/99 5,617,087
10/31/99 5,634,392 10/31/99 5,706,517 10/31/99 5,569,903
11/30/99 5,682,361 11/30/99 5,756,164 11/30/99 5,618,918
12/31/99 5,653,208 12/31/99 5,732,563 12/31/99 5,578,462
1/31/00 5,656,642 1/31/00 5,722,818 1/31/00 5,581,809
2/29/00 5,706,335 2/29/00 5,761,161 2/29/00 5,629,813
3/31/00 5,797,386 3/31/00 5,844,698 3/31/00 5,718,201
4/30/00 5,773,500 4/30/00 5,830,086 4/30/00 5,684,463
15.47% 16.60%
4.41% 4.72%
-100.00% -100.00% -100.00%
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- -------------------------------
THREE SIX ONE THREE SINCE
AS OF APRIL 30, 2000 MONTHS MONTHS YEAR YEARS INCEPTION*
---------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan California Bond Fund: Select Shares 2.11% 2.49% 0.60% 4.70% 4.30%
Lehman Brothers 1-16 Yr Municipal Bond Index** 1.87% 2.17% 0.48% 5.01% 4.72%
Lipper California Intermediate Muni Debt Funds Avg.*** 1.85% 2.07% -0.38% 4.20% 3.87%
AS OF MARCH 31, 2000
---------------------------------------------------------------------------------- -------------------------------
J.P. Morgan California Bond Fund: Select Shares 2.59% 2.25% 1.04% 5.05% 4.54%
Lehman Brothers 1-16 Yr Municipal Bond Index** 1.96% 1.92% 1.02% 5.32% 4.92%
Lipper California Intermediate Muni Debt Funds Avg.*** 2.49% 1.78% 0.26% 4.60% 4.20%
</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. THEREFORE, THESE RETURNS MAY BE HIGHER THAN THE FUND'S
WOULD HAVE BEEN HAD IT EXISTED DURING THE SAME PERIOD. 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 5.13%.
**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.
*** DESCRIBES THE AVERAGE TOTAL RETURN FOR ALL FUNDS IN THE INDICATED LIPPER
CATEGORY, AS DEFINED BY LIPPER INC., AND DOES NOT TAKE INTO ACCOUNT
APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 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.
4
<PAGE>
PORTFOLIO MANAGER Q&A
This interview was conducted with Benjamin Thompson, who with Robert
Meiselas, manages the J.P. Morgan California Bond Fund.
[PHOTO] BENJAMIN THOMPSON, vice president, is a portfolio manager with the
U.S. Fixed Income Group and is responsible for managing municipal
bonds. Ben joined Morgan in 1999. He is the Investment Strategist
for the tax-aware fixed income sector, with responsibilities
including the coordination of strategy and research, portfolio
structuring, and trade execution for U.S. tax-aware fixed income
accounts. Prior to joining Morgan, Ben was a senior fixed income
portfolio manager at Goldman Sachs Asset Management. Before his
time at Goldman Sachs, he worked in the Structured Finance Group of
the Chase Manhattan Bank, where his responsibilities included
credit analysis and structuring for leveraged acquisitions and tax
advantaged products. He earned a B.A. in Economics from Colorado
College.
[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 11, 2000 and represents both Ben's and Bob's
views on that date.
HOW WOULD YOU CATEGORIZE THE CALIFORNIA BOND FUND'S PERFORMANCE FOR THE YEAR
ENDED APRIL 30, 2000?
Despite a challenging environment, the fund performed well versus its benchmark
and peers. For the year ended April 30, 2000, the Institutional Shares returned
70 basis points and the Select Shares returned 60 basis points while the
benchmark, the unmanaged Lehman Brothers 1-16 year Municipal Bond Index,
returned 48 basis points. The fund's performance also compared favorably to its
Lipper peer group. The average return for the Lipper California Intermediate
Municipal Debt Funds for the period was negative 38 basis points.
WHAT IS THE CHALLENGING ENVIRONMENT YOU REFER TO?
Interest rates in the twelve months ended April 30, 2000, have risen
dramatically, which, of course, lowers bond prices. On April 28, 1999, 10-year
Treasury bonds were at 5.35%. By April 30 of this year, the rate on those
securities was 6.44%. Municipal bond rates reached their highest levels since
1997 during this period.
5
<PAGE>
The interest rate increases came in response to the Federal Reserve's efforts
to keep the robust U.S. economy from overheating and causing inflation. The
past 12 months have seen dramatic increases in consumer spending, the lowest
unemployment rates in three decades, rising home sales, and above-normal GDP
growth, all factors that can signal inflation.
HOW HAVE YOU RESPONDED TO THESE MARKET FORCES IN MANAGING THE CALIFORNIA BOND
FUND?
We continue to follow our conservative, quality-oriented strategy. As of
April 30, 2000, approximately 64% of the portfolio was in AAA-rated or
similar quality securities. Although we do not feel that the current market
is adequately compensating investors for municipal credit risk in general,
our research team continues to identify higher yielding, security-specific
opportunities.
Private placements, which are issues we purchase directly from borrowers,
remain an important part of our strategy and at April 30, 2000, represented
5.8% of the portfolio. Along with successfully managing our yield and
duration strategies, our private placement allocation enhanced performance
during the year.
Yield curve management also is an important activity for us. During the past
12 months, we have experienced a non-parallel shift in interest rates. That
is, the yield on shorter maturity securities rose more than that of longer
maturities, causing a OflatteningO of the yield curve. This situation makes
the selection of maturities very important. We adjusted the portfolio's yield
curve exposure to take advantage of this non-parallel interest rate shift,
and this strategy also contributed to our performance.
WHAT HAS BEEN HAPPENING IN THE CALIFORNIA BOND MARKET SPECIFICALLY?
California bonds have significantly outperformed those of other major
bond-issuing states. As a result, yields on California municipal issues are
lower than their national counterparts of equal credit quality. The strong
and stable demand for California bonds has been a key contributor to the
price insulation in a rapidly rising interest rate environment.
This expensiveness creates an opportunity to bring into the portfolio some
non-California, higher yielding bonds that (on an after-tax basis) may
benefit investors more than California-exempt bonds.
Supply will remain an issue. The unprecedented creation of wealth in
California continues, raising demand by resident investors for bonds. The
supply outlook remains low. U.S. municipal new issuance in the first quarter
of 2000 was down 32% compared to the first quarter of 1999, and tax revenues
generated by the strong economy and rising rates conspire to keep issuers out
of the market.
Our challenge in the months ahead will be to implement our strategy in this
thinner market.
WHAT IS THE OUTLOOK FOR THE FUND?
The movement of interest rates will continue to be a significant factor in
the months to come. While the economy has shown some signs of slowing, the
Federal Reserve will continue to guard against inflation by raising
short-term rates when it deems it necessary.
6
<PAGE>
The federal government's continued debt-reduction activities will further
reduce the supply of Treasury bonds, putting pressure on the shape of the
yield curve.
Retail demand for bonds may remain strong. The volatility in the stock market
during the first quarter of 2000 heightened investor awareness of asset
allocation strategies and brought investors back into the municipals market.
We remain committed to our conservative strategies for yield curve
management, thorough research, risk management, and quality selection to
guide us through this period of tight supply and volatile interest rates.
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 4/30/00
INSTITUTIONAL SHARES: $84,579,484
SELECT SHARES: $13,811,146
--------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/00
$98,390,630
--------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
--------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/13/00
EXPENSE RATIOS
INSTITUTIONAL SHARES: 0.50%
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, 2000
SECTOR ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[GRAPHIC]
INSURED 42.4%
REVENUE BONDS 31.9%
SHORT-TERM/OTHER 11.4%
GENERAL OBLIGATIONS 8.5%
PRIVATE PLACEMENTS 5.8%
30-DAY SEC YIELDS*
Institutional Shares: 4.54%
Select Shares: 4.40%
DURATION
5.4 years
QUALITY PROFILE
AAA** 63.62%
AA 12.20%
A 5.67%
Other 18.51%
* YIELDS REFLECT THE REIMBURSEMENT OF CERTAIN FUND EXPENSES AS DESCRIBED IN
THE PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED YIELDS WOULD HAVE
BEEN LOWER. YIELDS WILL FLUCTUATE.
** INCLUDES SHORT-TERM INVESTMENTS.
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 and other fund data presented 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.
The fund is non-diversified and may invest more than 5% of its assets in a
single issuer. Typically, most of the fund's investments will be from issuers in
the state of California. Therefore, it is possible that the fund could have
returns that are more volatile than those of diversified funds.
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, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ---------- ----------- ----------- ----------- --------------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (92.8%)
CALIFORNIA (78.4%)
$1,000 California State........................ GO Aa3/AA- 04/01/03 6.800% $ 1,055,350
1,000 California State........................ GO Aa3/AA- 02/01/08 6.500 1,097,360
3,000 California State........................ GO Aa3/AA- 08/01/12 6.750 3,422,010
2,000 California Department of Water Systems,
(Central Valley Project Revenue,
Series J-3)........................... RB Aa2/AA 12/01/12 7.000 2,332,780
1,000 California Educational Facilities
Authority, (Claremont University,
Series 1998-C, due 05/01/28).......... PP NR/NR 05/01/01(a) 4.600 1,002,250
525 California Educational Facilities
Authority, (College and University
Projects, Series B)................... RB Baa2/NR 04/01/07 6.750 566,312
1,100 California Educational Facilities
Authority, (University of Southern
California, Series A)................. RB Aa2/AA+ 10/01/06 5.600 1,146,640
3,265 California Housing Finance Agency, (Home
Mortgage, Series I, due 08/01/28),
MBIA Insured.......................... RB Aaa/AAA 08/01/07(a) 4.950 3,231,305
5,313 California State University,
(Polytechnic University, Campus Energy
Project).............................. PP NR/NR 03/15/14 5.055 5,001,283
2,500 California Statewide Communities
Development Authority, (Catholic
Healthcare West, due 07/01/09)........ RB Baa1/BBB+ 07/01/00(a) 6.000 2,446,725
1,280 California Statewide Communities
Development Authority, (St. Joseph
Health System)........................ RB Aa3/AA 07/01/06 5.500 1,288,269
2,000 California, (due 10/01/19), MBIA
Insured............................... GO Aaa/AAA 10/01/02(a) 6.250 2,093,380
2,000 Central Valley Financing Authority,
(Cogeneration Project, Carson Ice
General Project, due 07/01/20)........ RB NR/AAA 07/01/03(a) 6.200 2,117,920
1,500 Contra Costa Transportation Authority,
(Sales Tax Revenue, Series A), FGIC
Insured............................... RB Aaa/AAA 03/01/06 6.000 1,584,675
1,000 Foothill, (Eastern Corridor Agency, Toll
Road Revenue, Senior Lien, Series A,
due 01/01/34)......................... RB Aaa/AAA 01/01/07(a) 6.000 1,061,800
600 La Quinta Redevelopment Agency,
(Refunding, Project Area No.1, Tax
Allocation), MBIA Insured............. RB Aaa/AAA 09/01/11 7.300 708,294
1,000 Long Beach Harbor, (due 05/15/06), MBIA
Insured............................... RB Aaa/AAA 05/15/05(a) 6.000 1,050,790
</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, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ---------- ----------- ----------- ----------- --------------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$2,000 Los Angeles Community Redevelopment
Agency, (Tax Allocation, Central
Business District, Series I).......... RB NR/BBB+ 11/15/01 5.000% $ 2,003,180
1,000 Los Angeles County Pension Obligation,
(Series A), FSA Insured............... GO Aaa/AAA 06/30/02 8.300 1,016,260
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 1,066,990
1,000 Los Angeles County Transportation
Commission, (Sales Tax Revenue, Series
A, due 07/01/20)...................... RB AAA/AA- 07/01/01(a) 6.750 1,045,720
1,000 Los Angeles County Transportation
Commission, (Sales Tax Revenue, Series
B), FGIC Insured...................... RB Aaa/AAA 07/01/02 5.875 1,027,950
1,000 Los Angeles County, (Correctional
Facility Projects, due 09/01/13), MBIA
Insured............................... GO Aaa/AAA 09/01/00(a) 6.500 1,027,750
1,000 Los Angeles Department Water & Power
Electric Plant, (Second Issue),....... RB Aa3/A+ 11/15/02 5.750 1,029,600
5,110 Los Angeles, (Sonnenblick Del Rio, due
11/01/15), AMBAC Insured.............. RB Aaa/NR 11/01/10(a) 6.125 5,417,775
1,000 Modesto Irrigation Distribution
Financing Authority, (Series A, due
10/01/07), MBIA Insured............... RB Aaa/AAA 10/01/06(a) 5.450 1,031,910
2,000 Orange County Public Financing
Authority, (Waste Management
Systems).............................. RB Aaa/NR 12/01/09 5.750 2,082,640
1,000 Orange County Transmission Authority,
(Sales Tax Revenue, Series A), MBIA
Insured............................... RB Aaa/AAA 02/15/05 5.250 1,020,270
595 Palmdale Civic Authority, (Civic Center
Refinancing, Series A), MBIA
Insured............................... RB Aaa/AAA 07/01/07 5.500 617,015
1,210 Richmond, (Pension A), MBIA Insured..... GO Aaa/AAA 08/01/05 7.020 1,184,505
1,250 Riverside County Transportation
Commission, (Sales Tax Revenue, Series
A), FGIC Insured...................... RB Aaa/AAA 06/01/09 6.000 1,337,763
</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, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ---------- ----------- ----------- ----------- --------------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$3,500 Riverside Public Financing Authority,
(Lease Revenue, Open Space Notes,
Series A)............................. RB MIG1/NR 04/01/02 5.000% $ 3,527,370
1,000 Sacramento Municipal Utility, (Electric
Power and Light Revenue, Series L),
MBIA Insured.......................... RB Aaa/AAA 07/01/01 5.000 1,007,220
1,200 Sacramento Regional Sanitation
District.............................. GO Aa2/AA 08/01/04 5.000 1,214,424
1,200 San Diego County Regional Transmission
Commission, (Sales Tax Revenue, Series
A), AMBAC Insured..................... RB Aaa/AAA 04/01/06 6.000 1,268,628
3,790 San Francisco Bay Area Transit Financing
Authority, (Bridge & Toll Notes), ACA
Insured............................... RB NR/A 08/01/03 5.250 3,824,527
1,000 San Francisco City & County Airport
Commission, (International Airport,
Series 15B), FSA Insured.............. RB Aaa/AAA 05/01/06 5.500 1,034,840
5,000 San Joaquin Hills Transmission Corridor
Agency Toll Road, (Senior Lien, Zero
Coupon)............................... RB Aaa/AAA 01/01/23 0.000 1,300,550
1,240 San Jose Redevelopment Agency (Tax
Allocation, Merged Area Redevelopment
Project), MBIA Insured................ RB Aaa/AAA 08/01/07 6.000 1,319,906
3,000 San Jose Redevelopment Agency, (Tax
Allocation, Merged Area Redevelopment
Project), MBIA Insured................ RB Aaa/AAA 08/01/15 6.000 3,178,110
2,445 Santa Ana Financing Authority, (Lease
Revenue, Police Admininstration &
Holding Facility, Series A, due
07/01/24), MBIA Insured............... RB Aaa/AAA 07/01/20(a) 6.250 2,610,258
2,605 South Bayside Waste Management
Authority, (Solid Waste System, due
03/01/17), AMBAC Insured.............. RB Aaa/AAA 03/01/09(a) 6.125 2,728,685
</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, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ---------- ----------- ----------- ----------- --------------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$1,000 Stockton Community Facilities District,
(Special Tax, No 90-2, Brookside
Estates).............................. RB NR/NR 08/01/02 5.200% $ 996,990
1,000 Turlock Irrigation District Revenue,
(Series A), MBIA Insured.............. RB Aaa/AAA 01/01/07 6.000 1,059,960
--------------
TOTAL CALIFORNIA.................... 77,187,939
--------------
GUAM (1.1%)
1,000 Guam Power Authority, (Series A, due
10/01/24)............................. RB NR/AAA 10/01/04(a) 6.750 1,091,190
--------------
NORTH CAROLINA (2.1%)
2,000 North California Municipal Power Agency,
(No. 1, Catawba Electric Revenue,
Series B)............................. RB Baa1/BBB+ 01/01/08 6.375 2,053,940
--------------
PENNSYLVANIA (1.5%)
1,525 Montgomery County Industrial Development
Authority Pollution Control, (Peco
Energy Co., Series A, due 10/01/30)... RB Baa2/BBB+ 10/01/04(a) 5.200 1,488,019
--------------
PUERTO RICO (9.7%)
4,000 Puerto Rico Electric Power Authority,
(Power Revenue Series X, due
07/01/21)............................. RB AAA/BBB+ 07/01/05(a) 6.125 4,284,960
3,000 Puerto Rico Electric Power Authority,
(Power Revenue, Series BB), MBIA
Insured............................... RB Aaa/AAA 07/01/11 6.000 3,226,290
2,000 Puerto Rico Municipal Finance Agency,
(Series B)............................ GO Baa1/A- 08/01/02 5.500 2,022,920
--------------
TOTAL PUERTO RICO................... 9,534,170
--------------
TOTAL LONG TERM INVESTMENTS (COST $91,612,436)......................................... 91,355,258
--------------
SHORT-TERM INVESTMENTS (12.0%)
NORTH CAROLINA (0.2%)
200 Wake County Industrial Facilities &
Pollution Control Financing Authority,
(Series B, due 06/15/14), LOC-Bank of
New York.............................. VRDN VMIGI/A-1+ 05/01/00(a) 6.100 200,000
--------------
</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, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ---------- ----------- ----------- ----------- --------------
<C> <S> <C> <C> <C> <C> <C>
PUERTO RICO (6.1%)
$6,000 Puerto Rico Commonwealth, (Series A-1,
Registered D Shares, due 07/30/00).... VRDN VMIG1/NR 05/01/00(a) 6.100 $ 6,000,000
--------------
OTHER (5.7%)
5,572 J.P. Morgan Institutional Tax Exempt
Money Market Fund*.................... 4.510(y)% 5,572,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $11,772,000).......................................... 11,772,000
--------------
TOTAL INVESTMENTS (COST $103,384,436) (104.8%)............................................. 103,127,258
LIABILITIES IN EXCESS OF OTHER ASSETS (-4.8%).............................................. (4,736,628)
--------------
NET ASSETS (100.0%)........................................................................ $ 98,390,630
==============
</TABLE>
------------------------------
Note: Based on the cost of investments of $103,384,436 for federal income tax
purposes at April 30, 2000, the aggregate gross unrealized appreciation and
depreciation was $489,895 and $747,073 respectively, resulting in net unrealized
depreciation of investments of $257,178.
(a) The date listed under the heading maturity date represents an optional
tender date or the next interest rate reset date, which may vary. The actual
maturity date is indicated in the security description.
(y) Yield to maturity
Abbreviations used in Schedule of Investments:
ACA - American Capital Access Corporation, AMBAC - Ambac Indemnity Corp.,
FGIC - Financial Guaranty Insurance Company, FSA - Financial Securities
Assurance, GO - General Obligation Bond, LOC - Letter of Credit, MBIA -
Municipal Bond Investors Assurance Group, NR - Not Rated, PP - Private
Placement, RB - Revenue Bond, VRDN - Variable Rate Demand Note.
* Affiliate - Money Market mutual fund registered under the Investment Company
Act of 1940, as amended and advised by J.P. Morgan Investment Management, Inc.
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $103,384,436 ) $103,127,258
Cash 2,165,362
Interest Receivable 1,588,188
Receivable for Expense Reimbursements 33,229
Deferred Organization Expenses 11,839
Prepaid Expenses and Other Assets 293
------------
Total Assets 106,926,169
------------
LIABILITIES
Payable for Investments Purchased 8,216,823
Dividends Payable to Shareholders 226,724
Advisory Fee Payable 23,711
Shareholder Servicing Fee Payable 9,482
Administrative Services Fee Payable 3,829
Fund Services Fee Payable 66
Administration Fee Payable 57
Accrued Expenses 54,847
------------
Total Liabilities 8,535,539
------------
NET ASSETS $ 98,390,630
============
INSTITUTIONAL SHARES
Applicable to 8,435,436 shares outstanding
(par value $0.001, unlimited shares authorized) $ 84,579,484
============
Net Asset Value, Offering and Redemption Price
per Share $ 10.03
============
SELECT SHARES
Applicable to 1,354,431 shares outstanding
(par value $0.001, unlimited shares authorized) $ 13,811,146
============
Net Asset Value, Offering and Redemption Price
per Share $ 10.20
============
ANALYSIS OF NET ASSETS
Paid-in capital $ 99,666,062
Distributions in Excess of Net Investment Income (18,766)
Accumulated Net Realized Loss on Investments (999,488)
Net Unrealized Depreciation of Investments (257,178)
------------
Net Assets $ 98,390,630
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 3,688,359
Dividend Income From Affiliate 50,860
-----------
Total Investment Income 3,739,219
EXPENSES
Advisory Fee $ 239,110
Shareholder Servicing Fee-Institutional Shares 65,103
Administrative Services Fee 39,930
Professional Fees and Expenses 39,825
Transfer Agent Fee 38,218
Shareholder Servicing Fee-Select Shares 36,500
Custodian Fees and Expenses 35,145
Registration Fees 31,736
Amortization of Organization Expense 7,186
Fund Services Fee 1,452
Trustees' Fees and Expenses 984
Administrative Fee 616
Miscellaneous 38,268
---------
Total Expenses 574,073
Less: Reimbursement of Expenses (154,623)
---------
NET EXPENSES 419,450
-----------
NET INVESTMENT INCOME 3,319,769
NET REALIZED LOSS ON INVESTMENTS (999,460)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENTS (1,729,459)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 590,850
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<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, 2000 APRIL 30, 1999
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 3,319,769 $ 2,606,540
Net Realized Gain (Loss) on Investments (999,460) 385,658
Net Change in Unrealized Appreciation
(Depreciation) of Investments (1,729,459) 961,853
------------- -------------
Net Increase in Net Assets Resulting from
Operations 590,850 3,954,051
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Institutional Shares (2,752,604) (2,067,761)
Select Shares (585,931) (538,779)
------------- -------------
Total Distributions from Net Investment
Income (3,338,535) (2,606,540)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED
GAINS
Institutional Shares (82,455) (271,251)
Select Shares (18,326) (60,871)
------------- -------------
Total Distributions from Realized Gains (100,781) (332,122)
------------- -------------
Total Distributions to Shareholders (3,439,316) (2,938,662)
------------- -------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 71,720,511 49,823,336
Reinvestment of Dividends 1,417,624 1,688,379
Cost of Shares of Beneficial Interest Redeemed (53,392,140) (23,124,782)
------------- -------------
Net Increase from Shareholder Transactions 19,745,995 28,386,933
------------- -------------
Total Increase in Net Assets 16,897,529 29,402,322
NET ASSETS
Beginning of Fiscal Year 81,493,101 52,090,779
------------- -------------
End of Fiscal Year (including undistributed net
investment income of $0 and $0, respectively) $ 98,390,630 $ 81,493,101
============= =============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<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 PERIOD
DECEMBER 23, 1996
FOR THE FISCAL YEAR ENDED APRIL 30, (COMMENCEMENT OF
------------------------------------- OPERATIONS) THROUGH
2000 1999 1998 APRIL 30, 1997
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.40 $ 10.20 $ 9.90 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.42 0.41 0.42 0.16
Net Realized and Unrealized Gain (Loss) on
Investments (0.36) 0.25 0.30 (0.10)
------- ------- ------- -------
Total from Investment Operations 0.06 0.66 0.72 0.06
------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.42) (0.41) (0.42) (0.16)
Net Realized Gain (0.01) (0.05) -- --
------- ------- ------- -------
Total distributions to Shareholders (0.43) (0.46) (0.42) (0.16)
------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 10.03 $ 10.40 $ 10.20 $ 9.90
======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Total Return 0.70% 6.55% 7.35% 0.56%(a)
Net Assets, End of Year (in thousands) $84,579 $64,102 $46,280 $14,793
Ratio to Average Net Assets
Expenses 0.50% 0.49% 0.45% 0.45%(b)
Net Investment Income 4.19% 3.92% 4.11% 4.43%(b)
Expenses without Reimbursement 0.70% 0.71% 0.79% 3.46%(b)
Portfolio Turnover 87% 40% 44% 40%
</TABLE>
------------------------
(a) Not annualized.
(b) Annualized.
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>
SELECT SHARES
----------------------------------------------------------
FOR THE PERIOD
APRIL 21, 1997
FOR THE FISCAL YEAR ENDED APRIL 30, (COMMENCEMENT OF
------------------------------------- OPERATIONS) THROUGH
2000 1999 1998 APRIL 30, 1997
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.57 $ 10.35 $ 10.04 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.41 0.40 0.41 0.01
Net Realized and Unrealized Gain (Loss) on
Investments (0.36) 0.26 0.31 0.04
------- ------- ------- -------
Total from Investment Operations 0.05 0.66 0.72 0.05
------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.41) (0.40) (0.41) (0.01)
Net Realized Gain (0.01) (0.04) -- --
------- ------- ------- -------
Total distributions to Shareholders (0.42) (0.44) (0.41) (0.01)
------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 10.20 $ 10.57 $ 10.35 $ 10.04
======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Total Return 0.60% 6.43% 7.20% 0.51%(a)
Net Assets, End of Year (in thousands) $13,811 $17,391 $ 5,811 $ 302
Ratio to Average Net Assets
Expenses 0.65% 0.65% 0.65% 0.62%(b)
Net Investment Income 3.99% 3.76% 3.94% 4.52%(b)
Expenses without Reimbursement 0.85% 0.87% 1.00% 1.17%(b)
Portfolio Turnover 87% 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
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
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 portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Independent
pricing service procedures may also include the use of prices based on
yields or prices of securities of comparable quality, coupon maturity and
type, indications as to values from dealers, operating data, and general
market conditions. Unlisted securities are valued at the average of the
quoted bid and asked prices in the over-the-counter market provided by a
principal market maker or dealer. If prices are not supplied by the
portfolio's independent pricing service or principal market maker or
dealer, such securities are priced using fair values in accordance with
procedures adopted by the portfolio's trustees. All short-term securities
with a remaining maturity of sixty days or less are valued using the
amortized cost method.
b) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount becomes known. 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 amortized on a straight-line basis over a five
year period from the commencement of operations.
22
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
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.
g) For federal income tax purposes, the fund had a capital loss carryforward
at April 30, 2000 of $663,336, all of which expires in the year 2008. To
the extent that this capital loss is used to offset future capital gains,
it is probable that gains so offset will not be distributed to
shareholders.
h) The fund incurred approximately $336,124 of capital losses in the period
from November 1, 1999, to April 30, 2000. These losses were deferred for
tax purposes until May 1, 2000.
2. TRANSACTIONS WITH AFFILIATES
a) The fund has an Investment Advisory Agreement with J.P. Morgan Investment
Management Inc. ("JPMIM"), a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. 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, 2000, such fees amounted to
$239,110. The advisory fee above includes an advisory fee rebate of $3,752
as a result of the fund's investment in the J.P. Morgan Institutional Tax
Exempt Money Market Fund.
b) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended April 30, 2000, the fee for these services amounted to
$616.
c) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan, under which Morgan
is responsible for certain aspects of the administration and operation of
the fund. Under the Services Agreement, the fund has agreed to pay Morgan
a fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated based on the aggregate average daily net assets of
the 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 similiar services. For the
fiscal year ended April 30, 2000, the fee for these services amounted to
$39,930.
23
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
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. For the fiscal year ended April
30, 2000, J.P. Morgan has agreed to reimburse Institutional Shares and
Select Shares, $123,536 and $31,087, 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 of 0.10% and 0.25% for Institutional Shares
and Select Shares, respectively. For the fiscal year ended April 30, 2000,
the fee for these services amounted to $65,103 and $36,500 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 the Group. The
fund's allocated portion of Group's costs in performing its services
amounted to $1,452 for the fiscal year ended April 30, 2000.
f) The Fund made investments of cash balances in the J.P. Morgan
Institutional Tax Exempt Money Market Fund, pursuant to an exemptive order
received from the Securities and Exchange Commission. For the year ended
April 30, 2000, the Fund earned $50,860 in aggregate from such
investments.
g) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which
they invest. The Trustees' Fees and Expenses shown in the financial
statements represents the fund's allocated portion of the total fees and
expenses. The trust's Chairman and Chief Executive Officer also serves as
Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $300.
24
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
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
30 APRIL 2000 30 APRIL 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold...................................... 6,269,906 62,956,087 3,085,988 32,094,023
Reinvestment of dividends and distributions...... 101,605 1,023,831 106,489 1,113,413
Shares redeemed.................................. (4,097,715) (41,241,649) (1,567,983) (16,200,972)
---------- ------------ ---------- ------------
Net Increase..................................... 2,273,796 $ 22,738,269 1,624,494 $ 17,006,464
========== ============ ========== ============
</TABLE>
SELECT SHARES
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
30 APRIL 2000 30 APRIL 1999
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold...................................... 856,515 8,764,424 1,681,761 $17,729,313
Reinvestment of dividends and distributions...... 38,364 393,793 54,161 574,966
Shares redeemed.................................. (1,186,083) (12,150,491) (651,711) (6,923,810)
---------- ------------ ---------- -----------
Net Increase (Decrease).......................... (291,204) $ (2,992,274) 1,084,211 $11,380,469
========== ============ ========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended April 30, 2000 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C> <C>
Municipal Obligations............................ $88,461,940 $66,296,075
</TABLE>
5. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 27, 1998, with unaffiliated lenders. The Agreement expired
on May 26, 1999, however, the fund as party to the Agreement has extended the
Agreement and will continue its participation therein for an additional 364 days
until May 23, 2000. The maximum borrowing under the new Agreement will be
$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 0.085% (0.065% prior to May 26, 1999) 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, 2000.
25
<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, 2000, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended and for the period December 23, 1996 (commencement of
operations) to April 30, 1997, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, 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,
2000 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
June 15, 2000
26
<PAGE>
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS, CALL J.P. MORGAN FUNDS SERVICES:
INSTITUTIONAL SHARES (800) 766-7722
SELECT SHARES (800) 521-5411
IMAR238_332
J.P. MORGAN CALIFORNIA BOND FUND
ANNUAL REPORT
APRIL 30, 2000
