JP MORGAN FUNDS, N-30D, 1999-01-20

JP MORGAN FUNDS
N-30D, 1999-01-20

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<PAGE>

LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN CALIFORNIA BOND FUND

December 1, 1998

Dear Shareholder:

We are pleased to report that the J.P. Morgan California Bond Fund provided
positive returns for the six months ended October 31, 1998. The fund
outperformed its competitors, as measured by the Lipper California Intermediate
Municipal Debt Bond Fund Average. For the reporting period, Institutional Shares
returned 5.30% andSelect Shares 5.26% compared with 4.86% for the Lipper
Average. The fund's benchmark, the Lehman Brothers 1-16 year Municipal Bond
Index, returned 4.88% over the same period.

Net asset values of the Institutional and Select Shares on October 31, 1998 were
$10.53 and $10.69 per share, respectively. Net assets attributable to
Institutional Shares stood at approximately $54.0 million on that date, while
those of Select Shares were approximately $15.4 million. During the period, the
fund made distributions from ordinary income of approximately $0.21 to
Institutional shareholders and $0.20 to Select shareholders. Substantially all
of these distributions represent tax-exempt interest dividends.

The report that follows includes an interview with Elaine Young and Robert
Meiselas, members of the portfolio management team responsible for the fund.
This interview is designed to answer commonly asked questions about the fund,
elaborate on what happened during the reporting period, and provide an outlook
for the months ahead.

As chairman and president of Asset Management Services, we appreciate your
investment in the fund. If you have any comments or questions, please call
your Morgan representative or J.P. Morgan Funds Services toll free at the
telephone numbers indicated on the cover of this report.

Sincerely yours,

/s/Ramon de Oliveira /s/Keith M. Schappert

Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . . . . 1 GLOSSARY OF TERMS . . . . . . . . 7

FUND PERFORMANCE. . . . . . . . . . . 2 FUND FACTS AND HIGHLIGHTS . . . . 8

PORTFOLIO MANAGER Q & A . . . . . . . 4 FINANCIAL STATEMENTS. . . . . . .10
- --------------------------------------------------------------------------------
</TABLE>

<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.

PERFORMANCE
TOTAL RETURNS AVERAGE ANNUAL
TOTAL RETURNS
----------------- ------------------
THREE SIX ONE SINCE
AS OF OCTOBER 31, 1998 MONTHS MONTHS YEAR INCEPTION*
- -------------------------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
J.P. Morgan California Bond Fund: Institutional Shares 3.23% 5.30% 7.27% 7.06%
Lehman Brothers 1-16 year Municipal Bond Index 2.78% 4.88% 7.38% 7.43%
Lipper California Intermediate Muni Debt Bond Fund Avg. 2.86% 4.86% 6.83% 6.68%

AS OF SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------------- ------------------
J.P. Morgan California Bond Fund: Institutional Shares 3.44% 4.60% 7.38% 7.39%
Lehman Brothers 1-16 year Municipal Bond Index 2.87% 4.26% 7.77% 7.69%
Lipper California Intermediate Muni Debt Bond Fund Avg. 3.32% 4.41% 7.30% 7.10%

</TABLE>

*12/23/96 -- COMMENCEMENT OF OPERATIONS (TOTAL RETURNS BASED ON MONTH END
FOLLOWING INCEPTION). ACTUAL RETURN SINCE INCEPTION: INSTITUTIONAL SHARES
RETURNED 7.15% AS OF OCTOBER 31, 1998.

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.

<PAGE>

FUND PERFORMANCE

PERFORMANCE
TOTAL RETURNS AVERAGE ANNUAL
TOTAL RETURNS
----------------- ------------------
THREE SIX ONE SINCE
AS OF OCTOBER 31, 1998 MONTHS MONTHS YEAR INCEPTION*
- -------------------------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
J.P. Morgan California Bond Fund: Select Shares** 3.26% 5.26% 7.13% 6.95%
Lehman Brothers 1-16 Yr Muni Bond Index 2.78% 4.88% 7.38% 7.43%
Lipper California Intermediate Muni Debt Bond Fund Avg. 2.86% 4.86% 6.83% 6.68%

AS OF SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------------- ------------------
J.P. Morgan California Bond Fund: Select Shares** 3.46% 4.57% 7.33% 7.28%
Lehman Brothers 1-16 Yr Muni Bond Index 2.87% 4.26% 7.77% 7.69%
Lipper California Intermediate Muni Debt Bond Fund Avg. 3.32% 4.41% 7.30% 7.10%

</TABLE>

*4/21/97 -- COMMENCEMENT OF OPERATIONS (TOTAL RETURNS BASED ON MONTH END
FOLLOWING INCEPTION). ACTUAL RETURN SINCE INCEPTION: SELECT SHARES RETURNED
7.04% AS OF OCTOBER 31, 1998.

**CONSISTENT WITH APPLICABLE REGULATORY GUIDANCE, PERFORMANCE FOR THE FUND'S
SELECT SHARES PRIOR TO APRIL 21, 1997, REFLECTS THE PERFORMANCE OF THE FUND'S
INSTITUTIONAL SHARES. THE PERFORMANCE FOR SUCH PERIOD REFLECTS THE DEDUCTION OF
LOWER CHARGES AND EXPENSES ASSOCIATED WITH HOLDING INSTITUTIONAL SHARES.

<PAGE>

PORTFOLIO MANAGER Q&A

This interview was conducted with Elaine Young and Robert Meiselas, both members
of the portfolio management team responsible for managing the J.P. Morgan
California Bond Fund. This interview was conducted on November 16, 1998 and
represents both Elaine and Bob's views on that date.

[PHOTO]

ELAINE YOUNG, vice president, is a portfolio manager with the U.S. Fixed Income
Group responsible for managing municipal bonds. In Ms. Young's previous position
at J.P. Morgan, she traded tax-exempt securities. Elaine joined J.P. Morgan in
1994 after five years of municipal trading experience at Scudder, Stevens, and
Clark. She graduated from New York University with a B.S. degree in 1986 and an
M.B.A. in Finance in 1989. Elaine is also a Chartered Financial Analyst.

[PHOTO]

ROBERT MEISELAS, vice president, is a portfolio manager with the U.S. Fixed
Income Group responsible for managing municipal bonds, including tax-exempt
private placements. Mr. Meiselas is a CPA and joined J.P. Morgan's financial
group in 1982, after having spent ten years at Coopers & Lybrand. Bob also spent
five years in J.P. Morgan's Private Banking Investment Management Group, and
moved to J.P. Morgan Investment Management in 1997. Bob is a graduate of St.
John's University and has completed graduate work at Long Island University in
the field of taxation.

THE PORTFOLIO BENEFITED FROM SOLID PERFORMANCE FOR THE SIX-MONTH PERIOD. IN
PARTICULAR, IN THE LAST THREE MONTHS, THE PORTFOLIO OUTPERFORMED THE LIPPER
CALIFORNIA INTERMEDIATE MUNICIPAL INDEX. WHAT FACTORS BROUGHT ABOUT THESE
IMPRESSIVE RETURNS?

EY: Our fund outperformed the Index due to our duration position and our
selection of bonds. For municipal bond funds, the main driver of performance is
the duration position. Depending upon our expectation of interest rate
movements, we tactically adjusted the duration of the portfolio. We became
bullish on interest rates in the middle of the third quarter and our timing
proved to be very good. This long duration position enhanced the return of the
portfolio.

The portfolio's success can also be attributed to our security selection. We
continued to emphasize premium, non-callable bonds which retain their value in
both bull and bear bond markets. Our disciplined security selection process
also enabled us to identify undervalued and overvalued securities and therefore
take advantage of market mispricings.

<PAGE>

HOW HAS SUPPLY AFFECTED PERFORMANCE?

RM: California is the second largest issuing state in the municipal bond market;
however, demand outpaced supply in the third quarter. Demand was very strong
because July is a large reinvestment month for California investors. As a result
of this influx of cash, supply could not meet the heightened demand in the
summer months. This caused the California market to outperform the rest of the
municipal market.

Supply and demand should become more balanced. In the recent elections,
California voters approved more than $9 billion of authorization for new bond
issues. This is noteworthy because during the recession of the early 1990s,
voters rejected bond referendums. Although the state has increased
authorization, the entire amount of bonds will not be issued in any one year.

MANY ECONOMISTS, INCLUDING THOSE AT J.P. MORGAN, ARE CALLING FOR A RECESSION IN
1999. IF A RECESSION WERE TO OCCUR NEXT YEAR, HOW WOULD IT AFFECT MUNICIPAL BOND
FUNDS?

EY: It is difficult to forecast the impact of a recession on one segment of the
investment market because there are so many factors involved. However, we can
offer some observations. Unless the economic downturn is deep and sustained,
which we do not anticipate at this point, we think it is unlikely that the
credit standing of most states and municipalities would weaken considerably.
There may be pockets that are affected, but overall, the boom economy of the
last seven years has left many municipalities--including California--with budget
surpluses. Unlike the past, a large number of these state and local governments
have been able to set some money aside to provide a cushion for future economic
downturns. Separately, a pronounced economic downturn could also threaten stock
market prices which, at the same time, may benefit municipal bonds.

WHAT ADVANTAGES DO MUNICIPAL BOND FUNDS HAVE VERSUS OTHER TYPES OF FUNDS--MONEY
MARKET, EQUITY--RIGHT NOW?

RM: If circumstances allow, we believe that every investor should evaluate the
long-term prospects of their investments rather than the short-term results.
Among investment alternatives, we think that municipals should be a significant
part of a typical tax-aware portfolio. Under current economic and investment
conditions, the outlook for municipals is good, whereas other investment sectors
may be less attractive. As such, we think that this is a good time to invest in
municipals.

<PAGE>

HOW DO MUNICIPALS COMPARE TO OTHER FIXED INCOME INVESTMENTS?

EY: Municipals are more attractive than other fixed income investments right now
for a number of reasons. After considering Federal, state and local individual
income taxes, municipals provide a substantially higher after-tax return than
most fixed income alternatives. At the same time, they offer lower volatility
and less credit risk.

Each investor must consider his or her individual Federal and local income tax
rate and tax position. While the after-tax return advantage offered by
municipals is readily apparent for taxpayers in the highest income tax brackets,
it also makes sense for many California taxpayers who pay a lower combined tax
rate.

WHAT IS THE OUTLOOK FOR THE J.P. MORGAN CALIFORNIA BOND FUND?

RM: We're bullish on the outlook for the J.P. Morgan California Bond Fund and
have positioned the portfolio to take further advantage of economic conditions
and our view of the investment market. Moreover, we believe that demand for
municipals will remain very strong in the foreseeable future. In any case, our
portfolio should look very appealing to California investors who are subject to
high income taxes. It offers high after-tax return at low risk when compared to
most alternatives.

<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.

<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 10/31/98
INSTITUTIONAL SHARES: $53,971,367
SELECT SHARES: $15,355,576

- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 10/31/98
$69,326,943

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY

- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/11/98

EXPENSE RATIOS
<TABLE>
<CAPTION>
<S> <C>
INSTITUTIONAL SHARES: 0.48%
SELECT SHARES: 0.65%
</TABLE>

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 OCTOBER 31, 1998

SECTOR ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<S> <C>
INSURED 67.8%

REVENUE BONDS 25.7%

GENERAL OBLIGATIONS 3.2%

SHORT-TERM/OTHER 1.8%

PRIVATE PLACEMENTS 1.5%

30-DAY SEC YIELDS*

INSTITUTIONAL SHARES: 3.63%

SELECT SHARES: 3.42%
</TABLE>

DURATION
6.0 years

QUALITY PROFILE

<TABLE>
<S> <C>
AAA** 67.84%
AA 14.65%
A 4.98%
Other 12.53%
</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.

<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. The fund invests through a master portfolio(another
fund with the same objective). The fund invests in below investment-grade debt
obligations and foreign securities which are subject to special risks;
prospective investors should refer to the funds prospectus for a discussion of
these risks. Income may be subject to state and local taxes. Some income may be
subject to the Federal alternative minimum tax.

CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 (INSTITUTIONAL SHARES) OR
(800) 521-5411 (SELECT SHARES) FOR A PROSPECTUS CONTAINING MORE COMPLETE
INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER EXPENSES. PLEASE
READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.

9
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ----- -----------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (96.6%)
CALIFORNIA (87.7%)
$ 500 Alameda Public Financing Authority,
(Refunding, Marina Revenue, Special
Assessment, due 09/02/06)............. RB NR/NR 03/02/99(a) 5.900% $ 524,225
2,000 Anaheim Public Financing Authority,
(Public Improvements Project, Series
C), FSA Insured....................... RB Aaa/AAA 09/01/10 6.000 2,320,040
1,000 California.............................. GO Aa3/A+ 04/01/03 6.800 1,122,870
1,165 California Educational Facilities
Authority, (Refunding, University of
Southern California, Series A)........ RB Aa2/AA 10/01/06 5.600 1,295,480
525 California Educational Facilities
Authority, (University and College
Projects, Series B)................... RB Baa2/NR 04/01/07 6.750 611,452
1,000 California Educational Facilities
Authority, (University and College
Revenue, Series 1998-C)............... PP NR/NR 05/01/28 4.600 1,012,460
1,890 California Health Facilities Finance
Authority, (Refunding, Catholic
Healthcare West, Series A), MBIA
Insured............................... RB Aaa/AAA 07/01/06 5.500 2,076,883
1,000 California Health Facilities Finance
Authority, (Refunding, Stanford Health
Care, Series B, due 11/15/09)......... RB Aaa/AAA 11/15/08(a) 5.000 1,064,230
1,500 California State Public Works Board,
(Correctional Facility Improvements,
Series E)............................. RB A1/A 06/01/09 6.000 1,719,795
1,700 California State Water Department
Resource, (Central Valley Project,
Series T)............................. RB Aa2/AA 12/01/08 5.500 1,892,644
1,280 California Statewide Communities
Development Authority, (Refunding, St.
Joseph Health System)................. RB Aa3/AA 07/01/06 5.500 1,388,954
600 La Quinta Redevelopment Agency,
(Refunding, Project Area No.1, Tax
Allocation), MBIA Insured............. RB Aaa/AAA 09/01/11 7.300 773,850
1,000 Long Beach Harbor, (Airport and Marina
Improvements and Revenue, due
05/15/06), MBIA Insured............... RB Aaa/AAA 05/15/05(a) 6.000 1,133,080
1,090 Long Beach Harbor, (Refunding, Airport
and Marina Improvements and Revenue,
Series A), FGIC Insured............... RB Aaa/AAA 05/15/04 5.500 1,176,317
2,000 Los Angeles Community Redevelopment
Agency, (Refunding, Tax Allocation,
Central Business District)............ RB NR/BBB+ 11/15/01 5.000 2,064,020
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

10
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ----- -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 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% $ 1,986,116
1,000 Los Angeles County Public Works
Financing Authority, (Multiple Capital
Facilities, Project V, Series B),
AMBAC Insured......................... RB Aaa/AAA 12/01/07 6.000 1,152,140
1,500 Los Angeles County Public Works
Financing Authority, (Regional Park &
Open Space District, Series A)........ RB Aa3/AA 10/01/05 5.250 1,622,505
1,000 Los Angeles County Transportation,
(Prerefunded, Transit Improvements,
Sales Tax Revenue, Series A, due
07/01/20)............................. RB Aaa/AA- 07/01/01(a) 6.750 1,101,340
1,000 Los Angeles County Transportation,
(Refunding, Sales Tax Revenue, Series
B), FGIC Insured...................... RB Aaa/AAA 07/01/02 5.875 1,076,560
1,000 Los Angeles County, (Prerefunded,
Correctional Facility Improvements,
due 09/01/13), MBIA Insured........... GO Aaa/AAA 09/01/00(a) 6.500 1,074,080
500 Los Angeles Department of Water and
Power, (Crossover Refunded, Electric
Power and Light Improvements and
Revenues, due 04/01/32)............... RB Aa3/A+ 04/01/02(a) 6.750 556,365
2,000 Los Angeles Municipal Improvements,
(Resource Recovery Improvements and
Revenue, Series A), FSA Insured....... RB Aaa/AAA 02/01/03 5.500 2,139,940
1,000 Los Angeles Unified School District,
(School Improvements, Property Tax
Revenue, Series A), FGIC Insured...... GO Aaa/AAA 07/01/10 6.000 1,158,260
1,000 Los Angeles Unified School District,
(Series B), FGIC Insured.............. GO Aaa/AAA 07/01/08 5.250 1,089,650
1,250 Los Angeles, (Refunding, Series A) FGIC
Insured............................... GO Aaa/AAA 09/01/11 5.250 1,361,912
1,000 Metropolitan Water District (Refunding,
Southern California Waterworks
Revenue, Series A).................... RB Aa2/AA 07/01/07 5.250 1,091,710
2,000 Metropolitan Water District, (Refunding,
Southern California Waterworks
Revenue, Series B), MBIA Insured...... RB Aaa/AAA 07/01/03 5.500 2,152,800
2,000 Orange County Public Financing
Authority,(Refunding, Waste Management
Systems), AMBAC Insured............... RB Aaa/NR 12/01/09 5.750 2,250,820
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

11
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ----- -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,500 Orange County Transportation Authority,
(Refunding, Sales Tax Revenue, Measure
M, First Series, Series A)............ RB Aa3/AA+ 02/15/05 5.250% $ 1,608,150
1,300 Orange County Transportation Authority,
(Sales Tax Revenue, Measure M, First
Series), MBIA-IBC Insured............. RB Aaa/AAA 02/15/09 6.000 1,486,173
2,100 Orange County, (Refunding, Airport
Revenue), MBIA Insured................ RB Aaa/AAA 07/01/03 5.500 2,251,137
595 Palmdale Civic Authority, (Refunding,
Civic Center, Series A), MBIA
Insured............................... RB Aaa/AAA 07/01/07 5.500 660,373
1,250 Riverside County Transportation
Commission, (Refunding, Sales Tax
Revenue, Series A), FGIC Insured...... RB Aaa/AAA 06/01/09 6.000 1,438,925
1,000 Sacramento Municipal Utility,
(Refunding, Electric Power and Light
Revenue, Series L), MBIA Insured...... RB Aaa/AAA 07/01/01 5.000 1,037,200
1,750 San Bernardino County Transportation
Authority, (Sales Tax Revenue, Series
A, due 03/01/09) FSA Insured.......... RB Aaa/AAA 03/01/08(a) 5.000 1,864,030
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 2,825,607
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 2,023,290
1,000 San Jose Redevelopment Agency, (Merged
Area Redevelopment Project, Tax
Allocation), MBIA Insured............. RB Aaa/AAA 08/01/09 6.000 1,153,010
1,250 Santa Margarita/Dana Point Authority,
(Series A), AMBAC Insured............. RB Aaa/AAA 08/01/06 5.250 1,358,450
1,000 Santa Monica-Malibu Unified School
District, (Refunding)................. GO Aa3/NR 08/01/08 5.000 1,070,370
1,000 Sonoma County, (Tax & Revenue
Anticipation Notes)................... RB NR/Sp1+ 02/01/00 3.500 1,003,710
1,000 Stockton Community Facilities, (No.
90-2-Brookside Estates, Special Tax
Revenue).............................. RB NR/NR 08/01/02 5.200 1,015,870
-----------
TOTAL CALIFORNIA.................... 60,786,793
-----------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

12
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ----- -----------
<C> <S> <C> <C> <C> <C> <C>
PUERTO RICO (6.2%)
$ 1,400 Puerto Rico Commonwealth, (Public
Improvements, Refunding, Series B)
MBIA Insured.......................... GO Aaa/AAA 07/01/09 5.750% $ 1,588,230
1,000 Puerto Rico Electric Power Authority,
(Electric Power and Light Improvements
and Revenues, Series AA), MBIA
Insured............................... RB Aaa/AAA 07/01/10 6.250 1,176,010
1,435 Puerto Rico Public Finance Corp.,
(Commonwealth Appropriation, Series A)
AMBAC Insured......................... RB Aaa/AAA 06/01/08 5.250 1,562,758
-----------
TOTAL PUERTO RICO................... 4,326,998
-----------

WASHINGTON (2.7%)
1,700 Washington Public Power Supply Systems,
(Refunding, Nuclear Project No. 2,
Series A), AMBAC Insured.............. RB Aaa/AAA 07/01/05 6.000 1,881,186
-----------
TOTAL LONG TERM INVESTMENTS (COST $64,791,503)................................ 66,994,977
-----------
SHORT-TERM INVESTMENTS (1.8%)
CALIFORNIA (0.4%)
200 Chula Vista, (Refunding, IDR, San Diego
Gas & Electric Project, Series A, due
07/01/21)............................. VRDN VMIG1/A-1 11/02/98(b) 3.100 200,000
100 West Basin Municipal Water District,
(Phase II Recycled Water Project,
Series B, callable, due 08/01/27),
LOC-Bayerische Vereinsbank............ VRDN VMIG1/NR 11/04/98(b) 2.400 100,000
-----------
300,000
-----------

FLORIDA (0.2%)
150 Jacksonville, (PCR, Refunding, Florida
Power & Light Co. Project, due
05/01/29)............................. VRDN VMIG1/A-1+ 11/02/98(b) 3.300 150,000
-----------

GEORGIA (0.3%)
200 Bartow County Development Authority,
(PCR, Georgia Power Co., 1st Series,
due 06/01/23)......................... VRDN VMIG1/A 11/02/98(b) 3.300 200,000
-----------

INDIANA (0.3%)
200 Indiana Development Finance Authority,
(Refunding, Bayer Corp. Project, due
03/01/09)............................. VRDN P-1/A-1+ 11/02/98(b) 3.450 200,000
-----------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

13
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ----- -----------
<C> <S> <C> <C> <C> <C> <C>
MICHIGAN (0.4%)
$ 300 Midland County Economic Development
Corp., (Refunding, Dow Chemical Co.
Project, Series B, due 12/01/15)...... VRDN P-1/A-1 11/02/98(b) 3.350% $ 300,000
-----------

MISSOURI (0.2%)
100 Missouri Environmental Improvement
Authority & Energy Resource Authority,
(Refunding, Bayer Corp. Project, due
03/01/09)............................. VRDN P-1/NR 11/02/98(b) 3.450 100,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,250,000).................................... 1,250,000
-----------
TOTAL INVESTMENTS (COST $66,041,503) (98.4%)...................................... 68,244,977
OTHER ASSETS IN EXCESS OF LIABILITIES (1.6%)...................................... 1,081,966
-----------
NET ASSETS (100.0%)............................................................... $69,326,943
-----------
-----------
</TABLE>

- ------------------------------
Note: Based on the cost of the investments of $66,041,505 for federal income tax
purposes at October 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $2,204,194 and $720, respectively, resulting in net unrealized
appreciation of investments of $2,203,474.

(a) The date listed under the heading maturity date represents an optional
tender date or the next interest rate reset period. The actual maturity date is
indicated in the security description.

(b) Variable Rate Demand Notes tender dates and/or interest rates are reset at
specified intervals which coincide with their tender feature. The actual
maturity date is indicated in the security description.

Abbreviations used in schedule of investments:

AMBAC - Ambac Indemnity Corporation, FGIC - Financial Guaranty Insurance
Company, FSA - Financial Security Assurance, GO - General Obligation, IBC - IBC
Financial Data, Inc., IDR - Industrial Development Revenue, LOC - Letter of
Credit, MBIA - Municipal Bond Investors Assurance Corp., NR - Not Rated, PCR -
Pollution Control Revenue, PP - Private Placement, RB - Revenue Bond, VRDN -
Variable Rate Demand Note.

Definition of terms used:

Crossover Refunded: Bonds for which the issuer of the bond invests the proceeds
from a subsequent bond issue in cash and/or securities which have been
deposited.

Refunding: Bonds for which the issuer has issued new bonds and canceled the old
issue.

Prerefunded: Bonds for which the issuer of the bond invests the proceeds from a
subsequent bond issuance in treasury securities, whose maturity coincides with
the first call date of the first bond.

The Accompanying Notes are an Integral Part of the Financial Statements.

14
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $66,041,503 ) $68,244,977
Cash 81,185
Interest Receivable 1,071,688
Receivable for Investments Sold 1,028,830
Receivable for Expense Reimbursements 24,599
Deferred Organization Expenses 22,430
Prepaid Trustees' Fees 91
Prepaid Expenses and Other Assets 2,573
-----------
Total Assets 70,476,373
-----------
LIABILITIES
Payable for Investments Purchased 1,004,430
Dividends Payable to Shareholders 81,550
Advisory Fee Payable 17,311
Shareholder Servicing Fee Payable 7,706
Custody Fee Payable 6,334
Administrative Services Fee Payable 3,252
Administration Fee Payable 146
Fund Services Fee Payable 59
Accrued Expenses 28,642
-----------
Total Liabilities 1,149,430
-----------
NET ASSETS $69,326,943
-----------
-----------
ANALYSIS OF NET ASSETS
Paid-in Capital $66,852,304
Accumulated Net Realized Gain on Investment 271,165
Net Unrealized Appreciation of Investment 2,203,474
-----------
Net Assets $69,326,943
-----------
-----------
JPM INSTITUTIONAL SHARES
Applicable to 5,124,034 shares outstanding
(par value $0.001, unlimited shares authorized) $53,971,367
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $10.53
-----
-----
JPM PIERPONT SHARES
Applicable to 1,436,953 shares outstanding
(par value $0.001, unlimited shares authorized) $15,355,576
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $10.69
-----
-----
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

15
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $1,350,229
EXPENSES
Advisory Fee $ 91,316
Professional Fees and Expenses 20,526
Transfer Agent Fees 18,491
Administrative Services Fee 17,371
Custodian Fees and Expenses 17,048
Registration Fees 16,904
Amortization of Organization Expenses 3,762
Fund Services Fee 854
Trustees' Fees and Expenses 686
Administration Fee 389
Shareholder Servicing Fee-Institutional Shares 18,360
Shareholder Servicing Fee-Select Shares 15,575
Miscellaneous 11,831
--------
Total Expenses 233,113
Less: Reimbursement of Expenses (77,425)
--------
NET EXPENSES 155,688
----------
NET INVESTMENT INCOME 1,194,541
NET REALIZED GAIN ON INVESTMENT 223,948
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 1,693,046
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,111,535
----------
----------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

16
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
OCTOBER 31, 1998 YEAR ENDED
(UNAUDITED) APRIL 30, 1998
---------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,194,541 $ 1,822,734
Net Realized Gain on Investments 223,948 104,215
Net Change in Unrealized Appreciation of
Investments 1,693,046 584,893
---------------- --------------
Net Increase in Net Assets Resulting from
Operations 3,111,535 2,511,842
---------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Institutional Shares (958,252) (1,709,517)
Select Shares (236,289) (113,217)
---------------- --------------
Total Distributions from Net Investment
Income (1,194,541) (1,822,734)
---------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 31,726,746 64,023,412
Reinvestment of Dividends 703,758 964,307
Cost of Shares of Beneficial Interest Redeemed (17,111,334) (28,680,279)
---------------- --------------
Net Increase from Shareholder Transactions 15,319,170 36,307,440
---------------- --------------
Total Increase in Net Assets 17,236,164 36,996,548
NET ASSETS
Beginning of Period 52,090,779 15,094,231
---------------- --------------
End of Period $ 69,326,943 $ 52,090,779
---------------- --------------
---------------- --------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

17
<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
FOR THE DECEMBER 23, 1996
SIX MONTHS ENDED FOR THE (COMMENCEMENT OF
OCTOBER 31, 1998 FISCAL YEAR ENDED OPERATIONS) THROUGH
(UNAUDITED) APRIL 30, 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 0.21 0.42 0.16
Net Realized and Unrealized Gain (Loss) on
Investments 0.33 0.30 (0.10)
---------------- ----------------- -------------------
Total from Investment Operations 0.54 0.72 0.06
---------------- ----------------- -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.21) (0.42) (0.16)
---------------- ----------------- -------------------

NET ASSET VALUE, END OF PERIOD $ 10.53 $ 10.20 $ 9.90
---------------- ----------------- -------------------
---------------- ----------------- -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 5.30%(a) 7.35% 0.56%(a)
Net Assets, End of Period (in thousands) $ 53,971 $ 46,280 $ 14,793
Ratios to Average Net Assets
Expenses 0.48%(b) 0.45% 0.45%(b)
Net Investment Income 3.96%(b) 4.11% 4.43%(b)
Expenses without reimbursement 0.73%(b) 0.79% 3.46%(b)
Portfolio Turnover 27% 44% 40%
</TABLE>

- ------------------------
(a) Not annualized.

(b) Annualized.

The Accompanying Notes are an Integral Part of the Financial Statements.

18
<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
FOR THE APRIL 21, 1997
SIX MONTHS ENDED FOR THE FISCAL (COMMENCEMENT OF
OCTOBER 31, 1998 YEAR ENDED OPERATIONS) THROUGH
(UNAUDITED) APRIL 30, 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 0.20 0.41 0.01
Net Realized and Unrealized Gain on Investments 0.34 0.31 0.04
---------------- ----------------- -------------------
Total from Investment Operations 0.54 0.72 0.05
---------------- ----------------- -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.20) (0.41) (0.01)
---------------- ----------------- -------------------

NET ASSET VALUE, END OF PERIOD $ 10.69 $ 10.35 $ 10.04
---------------- ----------------- -------------------
---------------- ----------------- -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 5.26%(a) 7.20% 0.51%(a)
Net Assets, End of Period (in thousands) $ 15,556 $ 5,811 $ 302
Ratios to Average Net Assets
Expenses 0.65%(b) 0.65% 0.62%(b)
Net Investment Income 3.79%(b) 3.94% 4.52%(b)
Expenses without reimbursement 0.90%(b) 1.00% 1.17%(b)
Portfolio Turnover 27% 44% 40%
</TABLE>

- ------------------------
(a) Not annualized.

(b) Annualized.

The Accompanying Notes are an Integral Part of the Financial Statements.

19
<PAGE>
J. P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31,1998
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

J. P. Morgan California Bond Fund (the "fund") is a series of J. P. Morgan
Series Trust, a Massachusetts business trust (the "trust") which was organized
on August 15, 1996. The trust is registered under the Investment Company Act of
1940, as amended, as a no-load, non-diversified, open-end management investment
company. The trustees of the trust have divided the beneficial interests in the
fund into two classes of shares, Institutional Shares and Select Shares. The
investment objective of the fund is to provide high after-tax total return for
California residents consistent with moderate risk of capital. The fund invests
a significant amount of its assets in debt obligations issued by political
subdivisions and authorities in the State of California. The issuer's ability to
meet its obligations may be affected by economic and political developments
within the State of California. The Declaration of Trust permits the trustees to
issue an unlimited number of shares in the fund.

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:

a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked price on such exchanges. Securities listed on a foreign exchange
are valued at the last quoted sale price available before the time when
net assets are valued. Unlisted securities are valued at the average of
the quoted bid and asked prices in the over-the-counter market. Securities
or other assets for which market quotations are not readily available are
valued at fair value in accordance with procedures established by the
fund's trustees. Such procedures include the use of independent pricing
services, which use prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. All short-term securities
with a remaining maturity of less than 60 days are valued by the amortized
cost method.

b) Securities transactions are recorded on a trade date basis. 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. (first in first out)

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. Morgan
Guaranty Trust Company of New York ("Morgan"), a wholly owned subsidiary
of J.P. Morgan & Co. Incorporated ("J.P.

20
<PAGE>
J. P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31,1998
- --------------------------------------------------------------------------------
Morgan"), has paid the organization expenses of the fund. The fund has
agreed to reimburse Morgan for these costs which are being deferred and
amortized on a straight-line basis over a period not to exceed five years
beginning with the commencement of operations of the fund.

f) The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.

2. TRANSACTIONS WITH AFFILIATES

a) Prior to October 28, 1998, the fund had an Investment Advisory Agreement
with 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"), an affiliate of Morgan and a wholly owned
subsidiary of J.P. Morgan, and the terms of the agreement remained the
same. For the six months ended October 31, 1998, such fees amounted to
$91,316.

b) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the six
months ended October 31, 1998, the fee for these services amounted to
$389.

c) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan, under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
fund. Under the Services Agreement, the fund has agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated based on the aggregate average daily net assets of
the trust and certain other investment companies for which Morgan provides
similar services in accordance with the following annual schedule: 0.09%
on the first $7 billion of their aggregate average daily net assets and
0.04% of their aggregate average daily net assets in excess of $7 billion,
less the complex-wide fees payable to FDI. The portion of this charge
payable by the fund is determined by the proportionate share that its net
assets bear to the net assets of the trust and certain other investment
companies provided administrative services by Morgan. For the six months
ended October 31, 1998, the fee for these services amounted to $17,371.

21
<PAGE>
J. P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31,1998
- --------------------------------------------------------------------------------

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 six months ended October
31, 1998, J.P. Morgan has agreed to reimburse Institutional Shares and
Select Shares, $61,870 and $15,555, 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 six months ended October 31,
1998, the fee for these services amounted to $18,360 and $15,575 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
$854 for the six months ended October 31, 1998.

f) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J. P. Morgan Funds, the J. P. Morgan
Institutional Funds, and other registered investment companies in which
they invest. The Trustees' Fees and Expenses shown in the financial
statements represents the fund's allocated portion of the total fees and
expenses. The trust's Chairman and Chief Executive Officer also serves as
Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $200.

22
<PAGE>
J. P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31,1998
- --------------------------------------------------------------------------------

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
FOR THE SIX MONTHS ENDED FISCAL YEAR ENDED
OCTOBER 31, 1998 APRIL 30, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Sold............... 1,868,873 $ 19,368,501 5,551,027 $ 56,738,740
Reinvestment of Dividends........................ 46,074 480,037 83,691 858,434
Shares of Beneficial Interest Redeemed........... (1,328,059) (13,690,439) (2,592,118) (26,815,506)
---------- ------------ ---------- ------------
Net Increase..................................... 586,888 $ 6,158,099 3,042,600 $ 30,781,668
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>

SELECT SHARES

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998 APRIL 30, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Sold............... 1,176,642 $ 12,358,245 699,192 $ 7,284,672
Reinvestment of Dividends........................ 21,159 223,721 10,149 105,873
Shares of Beneficial Interest Redeemed........... (322,272) (3,420,895) (177,950) (1,864,773)
---------- ------------ ---------- ------------
Net Increase..................................... 875,529 $ 9,161,071 531,391 $ 5,525,772
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>

4. INVESTMENT TRANSACTIONS

Investment transactions (excluding short-term investments) for the six months
ended October 31, 1998 were as follows:

<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C> <C>
Municipal Obligations............................ $30,929,677 $15,440,478
</TABLE>

5. CREDIT AGREEMENT

The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. The Agreement expires
on May 27, 1998, however, the fund as party to the Agreement has extended the
Agreement and will continue its participation therein for an additional 364 days
until May 26, 1999. The maximum borrowing under the 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 0.065% on the unused portion of the committed amount which is
allocated to the funds in accordance with procedures established by their
respective trustees or directors. There were no outstanding borrowings pursuant
to the Agreement as of October 31, 1998.

23
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND -- SELECT SHARES
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------

A Joint Special Meeting of Shareholders of the J.P. Morgan Family of Funds was
held on August 20, 1998. Each of the applicable funds voted in favor of adopting
the following proposals, therefore, the results are aggregated for the trust
unless otherwise specified. The meeting was held for the following purposes:

1. To elect a slate of five trustees to hold office for a term of unlimited
duration subject to the current retirement age of 70.

2a.To approve the amendment of the fund's investment restriction relating to
diversification of assets.

2b.To approve the amendment of the fund's investment restriction relating to
concentration of assets in a particular industry.

2c.To approve the amendment of the fund's investment restriction relating to the
issuance of senior securities.

2d.To standardize the borrowing ability of the fund to the extent permitted by
applicable law.

2e.To approve the amendment of the fund's investment restriction relating to
underwriting.

2f.To approve the amendment of the fund's investment restriction relating to
investment in real estate.

2g.To approve the amendment of the fund's investment restriction relating to
commodities.

2h.To approve the amendment of the fund's investment restriction relating to
lending.

2i.To approve the reclassification of the fund's other fundamental restrictions
as nonfundamental.

3. To approve the reclassification of the fund's investment objective from
fundamental to nonfundamental.

4. To approve a new investment advisory agreement of the fund.

5. To amend the Declaration of Trust to provide dollar-based voting rights.

6. To ratify the selection of independent accountants, PricewaterhouseCoopers
LLP.

The results of the proxy solicitation on the above matters were as follows:

<TABLE>
<CAPTION>
DIRECTORS/MATTER VOTES FOR VOTES AGAINST ABSTENTIONS
- ------------------------------------------------- --------- ------------- -----------
<S> <C> <C> <C>
1. Frederick S. Addy............................. 2,692,335,831 18,884,648 --
William G. Burns............................... 2,692,395,937 18,824,542 --
Arthur C. Eschenlauer.......................... 2,691,798,900 19,421,489 --
Matthew Healey................................. 2,692,393,425 18,827,054 --
Michael P. Mallardi............................ 2,692,488,290 18,732,189 --
2. Amending of Investment Restrictions:
a. Relating to diversification of assets....... 2,858,998 0 0
b. Relating to concentration of assets......... 2,858,998 0 0
c. Relating to issuance of senior securities... 2,858,998 0 0
d. Relating to borrowing....................... 2,858,998 0 0
e. Relating to underwriting.................... 2,858,998 0 0
f. Relating to investment in real estate....... 2,858,998 0 0
g. Relating to commodities..................... 2,858,998 0 0
h. Relating to lending......................... 2,858,998 0 0
i. Reclassification of other restrictions as
nonfundamental............................ 2,858,998 0 0
3. Reclassification of investment objectives..... -- -- --
4. Investment advisory agreement................. 2,858,998 0 0
5. Independent accountants,
PricewaterhouseCoopers LLP................ 2,682,031,391 4,303,418 24,885,671
</TABLE>

24
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J.P. MORGAN CALIFORNIA BOND FUND -- INSTITUTIONAL SHARES
SUPPLEMENTAL PROXY INFORMATION
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