<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN CALIFORNIA BOND FUND
December 1, 1999
Dear Shareholder:
As interest rates rose significantly in the six months ended October 31,
1999, the J.P. Morgan California Bond Fund outperformed its competition, as
measured by the Lipper California Intermediate Municipal Debt Funds Average.
The Institutional Shares declined 1.73% in total return and the Select Shares
were off 1.84% during the period, while the Lipper average fell 2.38%. At the
same time, the fund trailed its benchmark, the Lehman Brothers 1-16 year
California Municipal Bond Index, which declined 1.65%. Of course, the index
return is exclusive of fees and expenses.
As interest rates rose, so, too, did the 30-day SEC yield, ending the period
at 4.48% for the Institutional Shares and 4.25% for the Select Shares, a tax
equivalent yield of 7.42% and 7.04%, respectively, at a 39.6% federal income
tax rate.
Net asset value of the Institutional Shares on October 31 declined to $10.02
from $10.40 on April 30, after distributions of $0.20 per share from ordinary
income, substantially all of which was exempt from federal income tax.
Similarly, the net asset value of Select Shares declined to $10.18 from
$10.57 over the same period, after distributions of $0.20 per share from
ordinary income, substantially all of which was exempt from federal income
tax.
The report that follows includes an interview with Benjamin S. Thompson and
Robert Meiselas, who manage the fund. This interview is designed to reflect
what happened during the reporting period, as well as provide an outlook for
the months ahead.
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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS............1 FUND FACTS AND HIGHLIGHTS.........6
FUND PERFORMANCE......................2 FINANCIAL STATEMENTS..............8
PORTFOLIO MANAGER Q&A.................4
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- -------------------------------
THREE SIX ONE SINCE
AS OF OCTOBER 31, 1999 MONTHS MONTHS YEAR INCEPTION*
- ----------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan California Bond Fund: Institutional Shares -0.48% -1.73% -0.56% 4.31%
Lehman Brothers 1-16 year Municipal Bond Index -0.45% -1.65% 0.07% 4.77%
Lipper California Intermediate Muni Debt Fund Avg. -0.93% -2.38% -1.14% 3.89%
AS OF SEPTEMBER 30, 1999
- ----------------------------------------------------------------------------------------- -------------------------------
J.P. Morgan California Bond Fund: Institutional Shares 0.88% -1.16% 0.12% 4.68%
Lehman Brothers 1-16 year Municipal Bond Index 0.58% -0.88% 0.74% 5.11%
Lipper California Intermediate Muni Debt Fund Avg. 0.47% -1.46% -0.43% 4.34%
</TABLE>
*THE INSTITUTIONAL SHARES COMMENCED OPERATIONS ON DECEMBER 23, 1996, AND
HAVE PROVIDED AN AVERAGE ANNUAL TOTAL RETURN OF 4.38% FROM THAT DATE THROUGH
OCTOBER 31, 1999. FOR THE PURPOSE OF COMPARISON, THE "SINCE INCEPTION" RETURNS
ARE CALCULATED FROM DECEMBER 31, 1996, THE FIRST DATE WHEN DATA FOR THE FUND'S
BENCHMARK AND ITS LIPPER CATEGORY AVERAGE WERE AVAILABLE.
LEHMAN BROTHERS 1-16 YEAR MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH
MEASURES MUNICIPAL BOND MARKET PERFORMANCE. IT DOES NOT INCLUDE FEES OR
OPERATING EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF
CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC. IS
A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- --------------------------------
THREE SIX ONE SINCE
AS OF OCTOBER 31, 1999 MONTHS MONTHS YEAR INCEPTION*
- ----------------------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan California Bond Fund: Select Shares -0.49% -1.84% -0.75% 4.17%
Lehman Brothers 1-16 Yr Muni Bond Index -0.45% -1.65% 0.07% 4.77%
Lipper California Intermediate Muni Debt Bond Fund Avg. -0.93% -2.38% -1.14% 3.89%
AS OF SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------
J.P. Morgan California Bond Fund: Select Shares 0.85% -1.19% -0.08% 4.54%
Lehman Brothers 1-16 Yr Muni Bond Index 0.58% -0.88% 0.74% 5.11%
Lipper California Intermediate Muni Debt Bond Fund Avg. 0.47% -1.46% -0.43% 4.34%
</TABLE>
*REFLECTS THE PERFORMANCE OF THE FUND'S INSTITUTIONAL SHARES FROM DECEMBER
23, 1996 THROUGH APRIL 21, 1997 (COMMENCEMENT OF OPERATIONS), WHICH HAD A LOWER
EXPENSE RATIO. FOR THE PURPOSE OF COMPARISON, THE "SINCE INCEPTION" RETURNS ARE
CALCULATED FROM DECEMBER 31, 1996, THE FIRST DATE WHEN DATA FOR THE SELECT
SHARES' BENCHMARK AND ITS LIPPER CATEGORY AVERAGE WERE AVAILABLE. THE SELECT
SHARES' AVERAGE TOTAL RETURN SINCE THE COMMENCEMENT OF OPERATIONS ON APRIL 21,
1997 IS 4.25%.
LEHMAN BROTHERS 1-16 YEAR MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH
MEASURES MUNICIPAL BOND MARKET PERFORMANCE. IT DOES NOT INCLUDE FEES OR
OPERATING EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF
CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC. IS
A LEADING SOURCE FOR MUTUAL FUND DATA.
3
<PAGE>
PORTFOLIO MANAGER Q&A
Benjamin S. Thompson and Robert Meiselas are both members of the portfolio
management team responsible for managing the J.P. Morgan California Bond Fund.
They sat down on November 16, 1999 to discuss the fund's performance over the
six months ended October 31, 1999. Below are highlights of that discussion,
which represent the views of both Ben and Bob as of that date.
[PHOTO]
BENJAMIN S. THOMPSON, vice president, is senior fixed income portfolio
manager and head of J.P. Morgan's municipal bond strategies. His
responsibilities include coordination of strategy and research, portfolio
structuring and trade execution for U.S. tax-aware fixed income accounts. Prior
to joining Morgan in 1999, Ben was a senior fixed income portfolio manager at
Goldman Sachs Asset Management. Earlier, he was in the structured finance group
of the Chase Manhattan Bank. He holds a B.A. in economics from Colorado College.
[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. Bob is a CPA and joined Morgan's financial group in 1982,
after spending 10 years at Coopers & Lybrand. He 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 holds a B.S. in accounting from St. John's
University and an M.S. in taxation from Long Island University.
IT'S BEEN A DIFFICULT SIX MONTHS FOR BONDS. STILL, YOU MANAGED TO OUTPERFORM
THE COMPETITION. WHAT HAPPENED?
Bond prices decline as interest rates rise. This year, the Federal Reserve Bank
has raised interest rates by 75 basis points. (The last increase came on
November 16, after our reporting period closed.) Prevailing rates for tax exempt
bonds have also risen. The Fed has also announced that it will carefully examine
domestic economic data to determine if further rate hikes are necessary.
Considering this potential for still higher rates, the municipal bond market
has been on the defensive.
SO WHY DID THE FUND OUTPERFORM THE INDEX?
For three reasons: First, we accurately projected the likely direction of rates
in the tax exempt market and reduced the fund's duration. When interest rates
began to rise, our investments lost less value than others because of their
lower duration. Second, we heavily favored higher quality, premium bonds. Late
last year, other investors began to increase their holdings of discount and par
coupon bonds in an effort to enhance their fund's performance. This was a good
strategy during a period of declining rates but it backfired when interest rates
began to rise. Instead of enhancing return, these more interest rate sensitive
bonds lost value quickly. Third, we increased our investments in tax exempt
private placements to roughly 8% of the fund.
4
<PAGE>
WHAT ARE PRIVATE PLACEMENTS? WHAT DO THEY ADD AND WHAT ARE THE RISKS?
Private placements are investment grade bonds that we purchase directly from
borrowers rather than the public market. Since these borrowers are able to save
the costs of issuing in the public market, they are willing to pay investors a
higher interest rate, sometimes as much as 50 to 100 basis points higher. Morgan
has nearly 30 years experience in the private placement market. While we have
worked hard to minimize risks, private placements are subject to credit risks
and changes in value similar to those of bonds traded in the public bond
market. However, the lack of public disclosure could make it more difficult to
sell private placements if the fund were forced to do so.
WHAT IS YOUR OUTLOOK FOR THE CALIFORNIA BOND MARKET?
We expect the supply of California municipal bonds to remain relatively low.
The U.S. economic boom has led to robust state and local tax revenues. While
municipalities continue borrowing to finance large projects, other borrowings
have vanished.
That said, Federal Reserve interest rate policy will significantly affect
California tax exempt interest rates, and this policy is very difficult to
forecast. The U.S. economy has slowed somewhat but is still growing rapidly.
There are a variety of fundamental domestic and international economic reasons
why inflation could become a threat. Still, increased U.S. productivity has
permitted strong economic growth without meaningful inflation for the past two
years.
We are mildly bearish. Clearly, the Fed is vigilantly watching for inflationary
signs and will increase interest rates if it believes that the economy is
overheating. We believe that fundamental economic factors will continue to force
the Fed to tighten interest rates. Nevertheless, we believe that demand for
California bonds will remain strong and that California bonds will continue to
command the highest prices in the municipal market.
IF YOU ARE BEARISH ON INTEREST RATES, SHOULD INVESTORS MOVE TO MONEY MARKET
FUNDS?
As always, the answers to questions about asset allocation depend on an
investor's longer term investment objectives. It's not clear that the Fed must
increase interest rates several times further. In fact, the perception that
higher rates are slowing the economy could spark a bond rally. Money market
investors will certainly relinquish yield while waiting for repeated Fed
tightening. They may also miss the rally.
5
<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 10/31/99
INSTITUTIONAL SHARES: $58,055,149
SELECT SHARES: $15,208,809
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/99
$73,263,958
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/99
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 OCTOBER 31, 1999
SECTOR ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - INSURED 53.6%
- - REVENUE BOND 26.4%
- - GENERAL OBLIGATION 9.3%
- - PRIVATE PLACEMENTS 8.5%
- - SHORT-TERM/OTHER 2.2%
30-DAY SEC YIELDS*
Institutional Shares: 4.48%
Select Shares: 4.25%
DURATION
6.0 years
QUALITY PROFILE
AAA** 55.94%
AA 17.27%
A 11.28%
Other 15.51%
* 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.
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE
PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE 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). 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.
7
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<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 (97.4%)
CALIFORNIA (85.2%)
$2,500 Anaheim Public Financing Authority,
(Public Improvements Project, Lease
Revenue, Series C), FSA Insured....... RB Aaa/AAA 09/01/10 6.000% $ 2,682,100
1,000 California.............................. GO Aa3/AA- 04/01/03 6.800 1,074,870
2,105 California.............................. GO Aa3/AA- 09/01/10 6.500 2,345,054
3,000 California.............................. GO Aa3/AA- 08/01/12 6.750 3,380,400
2,000 California Department of Water Systems,
(Central Valley Project Revenue,
Series J-3)........................... RB Aa2/AA 12/01/12 7.000 2,315,220
1,000 California Educational Facilities
Authority, (Claremont University,
Series 1998-C, due 05/01/28).......... PP NR/NR 05/01/01(a) 4.600 1,002,590
1,165 California Educational Facilities
Authority, (Refunding, University of
Southern California, Series A)........ RB Aa2/AA 10/01/06 5.600 1,226,861
525 California Educational Facilities
Authority, (University and College
Projects, Series B)................... RB Baa2/NR 04/01/07 6.750 574,843
3,500 California Housing Finance Agency,
(Amt-Home, Mtg-Series I), MBIA
Insured............................... RB Aaa/AAA 08/01/28 4.950 3,479,840
1,500 California State Public Works Board,
(Correctional Facility Improvements,
Lease Revenue, Series E).............. RB A1/A+ 06/01/09 6.000 1,598,175
5,570 California State University,
(Polytechnic University, Campus Energy
Project).............................. PP NR/NR 03/15/14 5.055 5,226,164
1,280 California Statewide Communities
Development Authority, (St. Joseph
Health System)........................ RB Aa3/AA 07/01/06 5.500 1,310,541
1,500 Contra Costa California Transportation
Authority, (Sales Tax Revenue, Series
A), FGIC Insured...................... RB Aaa/AAA 03/01/06 6.000 1,606,215
600 La Quinta Redevelopment Agency,
(Refunding, Project Area No.1, Tax
Allocation), MBIA Insured............. RB Aaa/AAA 09/01/11 7.300 709,464
1,000 Long Beach Harbor, MBIA Insured......... RB Aaa/AAA 05/15/06 6.000 1,061,890
1,250 Los Angeles California Harbor, (Series
B), MBIA-IBC Insured.................. RB Aaa/Aa3 08/01/25 6.625 1,317,250
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<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, (Refunding, Tax Allocation,
Central Business District)............ RB NR/BBB+ 11/15/01 5.000% $ 2,025,400
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 1,080,360
1,000 Los Angeles County Transportation,
(Prerefunded, Sales Tax Revenue,
Series A)............................. RB Aaa/AA- 07/01/20 6.750 1,062,930
1,000 Los Angeles County Transportation,
(Refunding, Sales Tax Revenue, Series
B), FGIC Insured...................... RB Aaa/AAA 07/01/02 5.875 1,042,460
1,000 Los Angeles County, (Prerefunded,
Correctional Facility Improvements),
MBIA Insured.......................... GO Aaa/AAA 09/01/13 6.500 1,042,380
3,000 Los Angeles Department of Power &
Waterworks, FGIC Insured.............. RB Aaa/AAA 05/15/20 6.125 3,236,550
2,000 Los Angeles Municipal Improvements,
(Sanitation Equipment Charge Revenue,
Series A), FSA Insured................ RB Aaa/AAA 02/01/03 5.500 2,071,200
2,000 Metropolitan Water District, (Refunding,
Southern California Waterworks
Revenue, Series B), MBIA Insured...... RB Aaa/AAA 07/01/03 5.500 2,079,680
2,000 Orange County Public Financing
Authority, (Refunding, Waste
Management Systems Revenue), AMBAC
Insured............................... RB Aaa/NR 12/01/09 5.750 2,082,840
595 Palmdale Civic Authority, (Civic Center
Refinancing, Series A), MBIA
Insured............................... RB Aaa/AAA 07/01/07 5.500 621,817
1,250 Riverside County Transportation
Commission, (Refunding, Sales Tax
Revenue, Series A), FGIC Insured...... RB Aaa/AAA 06/01/09 6.000 1,341,612
1,000 Sacramento Municipal Utility,
(Refunding, Electric Power and Light
Revenue, Series L), MBIA Insured...... RB Aaa/AAA 07/01/01 5.000 1,016,020
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<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)
$3,790 San Francisco Bay Area Transit Financing
Authority, (Bridge & Toll Notes, due
8/01/03), ACA Insured................. RB NR/A 08/01/03 5.250% $ 3,885,356
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 1,912,956
3,000 San Jose California Redevelopement
Agency, (Tax Allocation, Merged Area
Redevelopment Project), MBIA
Insured............................... RB Aaa/AAA 08/01/15 6.000 3,139,680
2,800 Southern California Public Power
Authority, (Refunding, Power Project
Revenue, Palo Verde Project, Series
A), FSA Insured....................... RB Aaa/AAA 07/01/01 5.000 2,844,856
1,000 Stockton Community Facilities,
(Brookside Estates Special Tax
Revenue).............................. RB NR/NR 08/01/02 5.200 999,920
-----------
TOTAL CALIFORNIA.................... 62,397,494
-----------
NORTH CAROLINA (2.8%)
2,000 North California Municipal Power Agency,
(Catawba Electric Revenue, Series
B).................................... RB Baa1/BBB+ 01/01/08 6.375 2,064,680
-----------
PENNSYLVANIA (2.1%)
1,525 Montgomery County Public Assistants
Industrial Development Authority,
(Refunding, PECO Energy Company,
Series A)............................. RB Baa2/BBB+ 10/01/30 5.200 1,513,258
-----------
PUERTO RICO (7.3%)
2,000 Puerto Rico Commonwealth, (Highway &
Transportation Authority, Series Y),
MBIA Insured.......................... RB Aaa/AAA 07/01/07 6.250 2,174,740
3,000 Puerto Rico Electric Power Authority,
(Power Revenue, Series BB), MBIA
Insured............................... RB Aaa/AAA 07/01/11 6.000 3,195,780
-----------
TOTAL PUERTO RICO................... 5,370,520
-----------
TOTAL LONG TERM INVESTMENTS (COST $72,111,674)......................................... 71,345,952
-----------
</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, 1999
- --------------------------------------------------------------------------------
<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>
SHORT-TERM INVESTMENTS (2.2%)
CALIFORNIA (0.4%)
$ 250 California Health Facilities Finance
Authority, (Refunding, Sutter Health,
Series B, due 07/01/12), AMBAC
Insured............................... ARDB VMIG1/A-1+ 11/01/99(a) 3.350% $ 250,000
-----------
NEW YORK (0.2%)
150 New York City Municipal Water Finance
Authority, (Water and Sewer Systems
Revenue, Series C, due 06/15/23), FGIC
Insured............................... ARDB VMIG1/A-1+ 11/01/99(a) 3.750 150,000
-----------
WYOMING (1.6%)
1,200 Unita County, (Pollution Control
Revenue, Chevron Project, due
08/15/20)............................. ARDB P-1/NR 11/01/99(a) 3.350 1,200,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,600,000)......................................... 1,600,000
-----------
TOTAL FIXED INCOME SECURITIES (COST $73,711,674)....................................... 72,945,952
-----------
TOTAL INVESTMENTS (COST $73,711,674) (99.6%)............................................... 72,945,952
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)............................................... 318,006
-----------
NET ASSETS (100.0%)........................................................................ $73,263,958
===========
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $731,711,674 for federal income tax
purposes at October 31, 1999, the aggregate gross unrealized appreciation and
depreciation was $177,605 and $943,327, respectively, resulting in net
unrealized depreciation of investments of $765,722.
(a) The date listed under the heading maturity date represents an optional
tender date. 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:
ACA - American Capital Access Corporation, AMBAC - Ambac Indemnity Corp.,
ARDB - Auction Rate Debt Bond, FGIC - Financial Guaranty Insurance Company,
FSA - Financial Securities Assurance, GO - General Obligation Bond, MBIA -
Municipal Bond Investors Assurance Corp., NR - Not Rated, PP - Private
Placement, RB - Revenue Bond.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $73,711,674) $72,945,952
Cash 1,395,312
Interest Receivable 1,260,439
Deferred Organization Expenses 15,414
Receivable for Expense Reimbursements 11,830
Receivable for Fund Shares Sold 11,050
Prepaid Trustees' Fees 166
Prepaid Expenses and Other Assets 328
-----------
Total Assets 75,640,491
-----------
LIABILITIES
Dividends Payable to Shareholders 156,518
Payable for Investments Purchased 2,063,708
Payable for Fund Shares Redeemed 69,941
Advisory Fee Payable 19,045
Shareholder Servicing Fee Payable 8,242
Administrative Services Fee Payable 3,195
Administration Fee Payable 51
Fund Services Fee Payable 42
Accrued Expenses 55,791
-----------
Total Liabilities 2,376,533
-----------
NET ASSETS $73,263,958
===========
J.P. MORGAN INSTITUTIONAL SHARES
Applicable to 5,791,933 shares outstanding
(par value $0.001, unlimited shares authorized) $58,055,149
===========
Net Asset Value, Offering and Redemption Price
per Share $10.02
-----
-----
J.P. MORGAN SELECT SHARES
Applicable to 1,493,684 shares outstanding
(par value $0.001, unlimited shares authorized) $15,208,809
===========
Net Asset Value, Offering and Redemption Price
per Share $10.18
-----
-----
ANALYSIS OF NET ASSETS
Paid-in capital $74,592,263
Accumulated Net Realized Loss on Investments (562,583)
Net Unrealized Depreciation of Investments (765,722)
-----------
Net Assets $73,263,958
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 1,715,020
EXPENSES
Advisory Fee $116,425
Professional Fees and Expenses 19,865
Administrative Services Fee 19,784
Transfer Agent Fee 19,033
Custodian Fees and Expenses 18,249
Registration Fees 15,933
Amortization of Organization Expense 3,612
Fund Services Fee 777
Administrative Fee 331
Trustees' Fees and Expenses 298
Shareholder Servicing Fee-J.P. Morgan
Institutional Shares 30,978
Shareholder Servicing Fee-J.P. Morgan Select
Shares 19,576
Miscellaneous 11,173
--------
Total Expenses 276,034
Less: Reimbursement of Expenses (70,247)
--------
NET EXPENSES 205,787
-----------
NET INVESTMENT INCOME 1,509,233
NET REALIZED LOSS ON INVESTMENTS (663,335)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENTS (2,238,003)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(1,392,105)
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<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, 1999 YEAR ENDED
(UNAUDITED) APRIL 30, 1999
---------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,509,233 $ 2,606,540
Net Realized Gain (Loss) on Investments (663,335) 385,658
Net Change in Unrealized Appreciation
(Depreciation) of Investments (2,238,003) 961,853
--------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (1,392,105) 3,954,051
--------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
J.P. Morgan Institutional Shares (1,214,299) (2,067,761)
J.P. Morgan Select Shares (294,933) (538,779)
--------------- -------------
Total Distributions from Net Investment
Income (1,509,232) (2,606,540)
--------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED
GAINS
J.P. Morgan Institutional Shares -- (271,251)
J.P. Morgan Select Shares -- (60,871)
--------------- -------------
Total Distributions from Realized Gains -- (332,122)
--------------- -------------
Total Distributions to Shareholders (1,509,232) (2,938,662)
=============== =============
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 16,138,777 49,823,336
Reinvestment of Dividends 655,538 1,688,379
Cost of Shares of Beneficial Interest Redeemed (22,122,121) (23,124,782)
--------------- -------------
Net Increase (Decrease) from Shareholder
Transactions (5,327,806) 28,386,933
--------------- -------------
Total Increase (Decrease) in Net Assets (8,229,143) 29,402,322
NET ASSETS
Beginning of Period 81,493,101 52,090,779
--------------- -------------
End of Period $ 73,263,958 $ 81,493,101
=============== =============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a unit outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
---------------------------------------------------------------
FOR THE PERIOD
FOR THE FISCAL YEAR DECEMBER 23, 1996
FOR THE SIX ENDED APRIL 30, (COMMENCEMENT OF
MONTHS ENDED -------------------- OPERATIONS) THROUGH
OCTOBER 31, 1999 1999 1998 APRIL 30, 1997
---------------- -------- -------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE PER UNIT, BEGINNING OF
PERIOD $ 10.40 $ 10.20 $ 9.90 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.20 0.41 0.42 0.16
Net Realized and Unrealized Gain (Loss)
on Investments (0.38) 0.25 0.30 (0.10)
------- ------- ------- -------
Total from Investment Operations (0.18) 0.66 0.72 0.06
------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.20) (0.41) (0.42) (0.16)
Net Realized Gain -- (0.05) -- --
------- ------- ------- -------
Total Distributions to Shareholders (0.20) (0.46) (0.42) (0.16)
------- ------- ------- -------
NET ASSET VALUE PER UNIT, END OF PERIOD $ 10.02 $ 10.40 $ 10.20 $ 9.90
======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Total Return (1.73)%(a) 6.55% 7.35% 0.56%(a)
Net Assets, End of Period (in thousands) $58,055 $64,102 $46,280 $14,793
Ratio to Average Net Assets
Net Expenses 0.50%(b) 0.49% 0.45% 0.45%(b)
Net Investment Income 3.93%(b) 3.92% 4.11% 4.43%(b)
Expenses without Reimbursement 0.68%(b) 1.20% 0.79% 3.46%(b)
Portfolio Turnover Rate 54% 40% 44% 40%
</TABLE>
- ------------------------
(a) Not Annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a unit outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
SELECT SHARES
---------------------------------------------------------------
FOR THE PERIOD
FOR THE FISCAL YEAR APRIL 21, 1997
FOR THE SIX ENDED APRIL 30, (COMMENCEMENT OF
MONTHS ENDED -------------------- OPERATIONS) THROUGH
OCTOBER 31, 1999 1999 1998 APRIL 30, 1997
---------------- -------- -------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE PER UNIT, BEGINNING OF
PERIOD $ 10.57 $ 10.35 $ 10.04 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.20 0.40 0.41 0.01
Net Realized and Unrealized Gain (Loss)
on Investments (0.39) 0.26 0.31 0.04
------- ------- ------- -------
Total from Investment Operations (0.19) 0.66 0.72 0.05
------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.20) (0.40) (0.41) (0.01)
Net Realized Gain -- (0.04) -- --
------- ------- ------- -------
Total Distributions to Shareholders (0.20) (0.44) (0.41) (0.01)
------- ------- ------- -------
NET ASSET VALUE PER UNIT, END OF PERIOD $ 10.18 $ 10.57 $ 10.35 $ 10.04
======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Total Return (1.84)%(a) 6.43% 7.20% 0.51%(a)
Net Assets, End of Period (in thousands) $15,209 $17,391 $ 5,811 $ 302
Ratio to Average Net Assets
Net Expenses 0.65%(b) 0.65% 0.65% 0.62%(b)
Net Investment Income 3.76%(b) 3.76% 3.94% 4.52%(b)
Expenses without Reimbursement 0.83%(b) 1.52% 1.00% 1.17%(b)
Portfolio Turnover 54% 40% 44% 40%
</TABLE>
- ------------------------
(a) Not Annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan California Bond Fund (the "fund") is a series of J.P. Morgan Series
Trust, a Massachusetts business trust (the "trust") which was organized on
August 15, 1996. The trust is registered under the Investment Company Act of
1940, as amended, as a no-load, non-diversified, open-end management investment
company. The trustees of the trust have divided the beneficial interests in the
fund into two classes of shares, Institutional Shares and Select Shares. The
investment objective of the fund is to provide high after-tax total return for
California residents consistent with moderate risk of capital. The fund invests
a significant amount of its assets in debt obligations issued by political
subdivisions and authorities in the State of California. The issuer's ability to
meet its obligations may be affected by economic and political developments
within the State of California. The Declaration of Trust permits the trustees to
issue an unlimited number of shares in the fund.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked price on such exchanges. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the fund's trustees. Such procedures include the use of
independent pricing services, which use prices based upon yields or prices
of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
short-term securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
b) Securities transactions are recorded on a trade date basis. 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.
17
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
f) The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
2. TRANSACTIONS WITH AFFILIATES
a) The fund has an Investment Advisory Agreement with 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 six months ended October 31, 1999, such fees amounted to
$116,425.
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, 1999, the fee for these services amounted to
$331.
c) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan, under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
fund. Under the Services Agreement, the fund has agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated based on the aggregate average daily net assets of
the trust and certain other registered investment companies for which
JPMIM acts as investment advisor in accordance with the following annual
schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess
of $7 billion, less the complex-wide fees payable to FDI. The portion of
this charge payable by the fund is determined by the proportionate share
that its net assets bear to the net assets of the trust and certain other
investment companies for which Morgan provides similiar services. For the
six months ended October 31, 1999, the fee for these services amounted to
$19,784.
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, 1999, Morgan has agreed to reimburse Institutional Shares and
Select Shares, $56,086 and $14,161, 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
18
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Agreement provides for the fund to pay Morgan a fee for these services
which is computed daily and paid monthly at an annual rate. The rate for
Institutional Shares is 0.10% of the average daily net assests of the
fund. The rate for the Select Shares is 0.25%. For the six months ended
October 31, 1999, the fee for these services amounted to $30,978 and
$19,576 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
$777 for the six months ended October 31, 1999.
f) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which
they invest. The Trustees' Fees and Expenses shown in the financial
statements represents the fund's allocated portion of the total fees and
expenses. The trust's Chairman and Chief Executive Officer also serves as
Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $150.
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 SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold...................................... 1,270,663 $ 12,888,078 3,085,988 $ 32,094,023
Reinvestment of dividends and distributions...... 41,225 418,285 106,489 1,113,413
Shares redeemed.................................. (1,681,595) (17,050,504) (1,567,983) (16,200,972)
---------- ------------ ---------- ------------
Net Increase (Decrease).......................... (369,707) $ (3,744,141) 1,624,494 $ 17,006,464
========== ============ ========== ============
</TABLE>
19
<PAGE>
J.P. MORGAN CALIFORNIA BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
SELECT SHARES
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold...................................... 315,979 $ 3,250,699 1,681,761 $17,729,313
Reinvestment of dividends and distributions...... 22,997 237,254 54,161 574,966
Shares redeemed.................................. (490,927) (5,071,616) (651,711) (6,923,810)
-------- ----------- --------- -----------
Net Increase (Decrease).......................... (151,951) $(1,583,663) 1,084,211 $11,380,469
======== =========== ========= ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C> <C>
Municipal Obligations............................ $39,686,169 $43,562,575
</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, 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 is
$150,000,000. The purpose of the Agreement is to provide another alternative for
settling large fund shareholder redemptions. Interest on any such borrowings
outstanding will approximate market rates. The fund pays a commitment fee at an
annual rate of 0.085% (0.065% prior to May 26, 1999) on the unused portion of
the committed amount. This is allocated to the funds in accordance with
procedures established by their respective trustees. There were no outstanding
borrowings pursuant to the Agreement as of October 31, 1999.
20
<PAGE>
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES:
SELECT SHARES (800) 521-5411
INSTITUTIONAL SHARES (800) 766-7722
IM0789-MI
J.P. MORGAN
CALIFORNIA
BOND FUND
SEMIANNUAL REPORT
OCTOBER 31, 1999
