<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INTERNATIONAL OPPORTUNITIES
PORTFOLIO
August 1, 2000
Dear Shareholder:
For the six months ended June 30, 2000, the J.P. Morgan International
Opportunities Portfolio of the J.P. Morgan Series Trust II returned -3.93%,
slightly underperforming the MSCI All Country World Free ex-U.S. Index, and the
Lipper Variable Annuity International Funds Average, which returned -3.33% and
-3.59%, respectively.
The portfolio's net asset value as of June 30, 2000 was $13.25 per share,
decreasing from $13.83 on December 31, 1999. The portfolio made net investment
income distributions of approximately $0.04 during the six months. On June 30,
2000, the portfolio's net assets totaled approximately $27.6 million.
Included in this report is an interview with Nigel F. Emmett, a member of the
portfolio management team. 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 J.P. Morgan Funds Services at (888) 756-8645.
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>
LETTER TO THE SHAREHOLDERS......1 PORTFOLIO FACTS AND HIGHLIGHTS .......6
PORTFOLIO PERFORMANCE...........2 FINANCIAL STATEMENTS..................8
PORTFOLIO MANAGER Q&A...........3
--------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
Portfolio 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 THREE FIVE SINCE
AS OF JUNE 30, 2000 MONTHS MONTHS YEAR YEARS YEARS INCEPTION*
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan International
Opportunities Portfolio -1.80% -3.93% 17.68% 9.51% 12.50% 11.76%
MSCI All Country World Free ex-U.S. Index** -4.08% -3.33% 18.10% 9.46% 11.07% 10.52%
Lipper Variable Annuity
International Funds Average*** -5.81% -3.59% 27.25% 13.34% 15.17% 14.63%
</TABLE>
*1/3/95 -- COMMENCEMENT OF OPERATIONS.
**MSCI ALL COUNTRY WORLD FREE EX-U.S. INDEX IS AN UNMANAGED INDEX THAT MEASURES
DEVELOPED AND EMERGING FOREIGN STOCK MARKET PERFORMANCE. THE INDEX DOES NOT
INCLUDE FEES OR OPERATING EXPENSES, AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
***DESCRIBES THE AVERAGE TOTAL RETURN FOR ALL FUNDS IN THE INDICATED LIPPER
CATEGORY, AS DEFINED BY LIPPER INC., AND DOES NOT TAKE INTO ACCOUNT APPLICABLE
SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR FUND
DATA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PORTFOLIO RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF PORTFOLIO DISTRIBUTIONS, AND REFLECT THE
REIMBURSEMENT OF PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES
NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. PORTFOLIO RETURNS DO NOT
REFLECT ANY SEPARATE ACCOUNT EXPENSES IMPOSED ON THE VARIABLE CONTRACTS. THESE
EXPENSES MAY INCLUDE A SALES CHARGE, PREMIUM TAX CHARGE, DAC TAX SALES CHARGE,
COST OF INSURANCE, MORTALITY EXPENSES, OR SURRENDER AND OTHER CHARGES. FOREIGN
INVESTING INVOLVES SPECIAL RISK, INCLUDING ECONOMIC AND POLITICAL INSTABILITY
AND CURRENCY FLUCTUATIONS.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with NIGEL F. EMMETT, vice president and member of the
team that manages the portfolio. Nigel joined J.P. Morgan in 1997. Previously,
he was employed by Brown Brothers Harriman & Co. in New York and Gartmore
Investment Management in London. Nigel holds a B.A. in economics from Manchester
University. He is an Associate Member of the Institute for Investment Management
and Research (AIIMR) and is a holder of the CFA designation. This interview was
conducted on July 25, 2000, and reflects his views on that date.
HOW IS THE PORTFOLIO MANAGED?
NFE: With this portfolio, our aim is to be invested in the most attractively
priced international securities within all sectors. In doing so, we invest
selectively in both developed and emerging markets, outside of the United
States. I would note that our overall allocation to any given country/region is
a reflection primarily of fundamental, bottom-up stock selection, rather than a
strategic country view, although we do undertake active currency management.
HOW DID THE PORTFOLIO PERFORM OVER THE PAST SIX MONTHS?
NFE: There are really two benchmarks for this portfolio. The standard benchmark
is the Morgan Stanley Capital International (MSCI) All Country World Free
ex-U.S. Index. To track how well we are doing relative to the competition,
however, we use the Lipper Variable Annuity International Funds Average (VAIFA).
With regard to both, the portfolio returned -3.93% over the past six months,
while the MSCI Index returned -3.33% and the Lipper VAIFA returned -3.59%.
WHICH COMPANIES HELPED PERFORMANCE?
NFE: Philips Electronics was a good performer over the six-month period. It was
helped by a broad range of profitable product lines, from semi-conductors to
consumer electronics. These businesses performed very well in calendar 1999, and
continued to do well in the first five months of this year, helping the company
outperform many of its peers. Back in April, for example, Philips reported
quarterly profits that were nearly double those of the comparable quarter of
1999. It has already achieved a 25% return on net assets, which exceeds the
company's 24% target for this year. In recent years, the management of Philips
has achieved better than average returns by directing capital to high growth
businesses and away from non-core businesses. Lately, the company has benefited
from a strong dollar and yen, which in conjunction with a weak euro, helps
European producers. Overall, we've seen relatively good top line sales growth,
and Philips continues to be one of our favorite stocks in Europe.
Another stock that did well over the period was Alcatel, a French technology
company. The first quarter's news flow was particularly encouraging, including
its report of strong earnings and news of progress on sev-
3
<PAGE>
eral business fronts. For example, it acquired Newbridge Networks, which
provided it with a competitive router offering. Also, the company forecast sales
of 20 million GSM mobile phones this year. If achieved, as seems likely, this
would represent a doubling of its 1999 sales and a 10% global market share.
Alcatel also announced a major joint venture with Fujitsu involving the W-CDMA
mobile telephone business in Europe and Asia, which gives the company access to
the Japanese market.
Embratel, Brazil's leading long distance and data communications provider, was a
positive-negative-positive story over the period. It benefited substantially
from the recovery in the domestic Brazilian market in 1999 and from strong
investor interest in telecoms throughout the world at the end of last year and
the beginning of this one. In the middle of the period, however, the stock
suffered from widespread profit taking, as investors sought to lock in the
profits they had gained. Our faith in the company's fundamentals were such that
we resisted the urge to sell during this period. Subsequently, the stock's price
started to recover.
Going forward, we like the company for a number of reasons. One is management's
proven ability to attract strong strategic partners, such as MCI WorldCom and
America Online. The company is currently in the process of working with AOL's
Brazilian Division, for example, to create an Internet access system for 25
cities in Brazil, with a combined population of over 30 million. It is also
continuing to build on its broadband services, and is adding more capacity to
its international routes.
HOW ABOUT THOSE THAT HURT PERFORMANCE?
NFE: One stock that hurt performance was Swisscom, the recently privatized Swiss
national telephone company. While still a favored portfolio holding, Swisscom
has been largely ignored by a market that remains focused on the larger players.
While sometimes overlooked by investors, Swisscom has begun to implement its own
wireless and Internet strategy. Among its actions in this regard is a joint
venture with Commerce One to create a business-to-business marketplace for
central Europe. It also announced its first Wireless Application Portal, which
enables it to offer mobile phone customers a basket of high demand services,
such as e-mail, data application, stock price quotes, and so on.
Another company that hurt performance, but that we also continue to like, was
Royal and Sun Alliance. This European insurance company saw its 1999 profits and
its stock price negatively impacted by storm damage claims in Europe and the
Americas. The stock was also hurt during this reporting period by speculators
who hoped the company would be acquired. When a bid was not forthcoming, they
sold their positions. The combination of these two factors, in our view, helped
to make an attractively priced stock even more attractive. From a bottom-up
perspective, Royal and Sun continues to be a very well managed company, with a
strong balance sheet, and a good book of business.
Equant, a French-European telecommunications company and data carrier, also
performed less well than expected. It was hurt, particularly in the May-June
period, by the general tech sell-off. It is also suffering from the predicament
faced by many new economy companies: it has a strong order book and is growing
very quickly, but is experiencing margin pressure associated with that growth.
This has concerned investors, who are questioning whether its growth can
compensate for its pricing and margin pressure.
4
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE INTERNATIONAL ARENA OVER THE MONTHS AHEAD?
NFE: We continue to view international markets as more attractive than the U.S.
In particular, we are finding attractively priced securities in continental
Europe, where earnings growth continues to meet or exceed expectations, as well
as Latin America, and certain Asian nations - excluding Japan, where news of
progress on the economic front is somewhat mixed. Within the U.K. there are
fewer opportunities.
This said, our focus remains on finding the best opportunities within each
sector, wherever those opportunities may be. In the finance sector, for example,
we currently don't hold any Japanese banking stocks, although we do hold a
Japanese consumer finance company. On the other hand, we like several banking
and finance companies in continental Europe. So, we end up being underweight
Japan and overweight Europe in this sector, simply because the best
opportunities within it happen to be in Europe at this point in time. On the
other hand, we think many European healthcare providers are expensive, while
several Japanese healthcare concerns are attractively priced. For this reason,
we are overweight the Japanese healthcare sector and underweight Europe.
Geography, really, has little to do with it.
WHAT WILL RISING U.S. INTEREST RATES MEAN FOR THE REST OF THE WORLD?
NFE: While investors are less worried now than they were a few months ago about
the prospect of rising U.S. interest rates, the interest rate discussion remains
very relevant. If U.S. rates continue to go up and there is a hard landing in
the United States, then global growth everywhere is going to slow and global
equity markets, especially emerging markets, will suffer the consequences.
Elsewhere, it looks like continental European interest rates are set to rise
again, perhaps later in the year, although they have peaked in the U.K. In
Japan, the domestic economy is still very weak. As a consequence, it looks as if
the Bank of Japan's zero interest rate policy will remain in place, at least for
the time being. From a global interest rate perspective, it's still very much a
question of whether central bankers will be able to control growth and
inflation, or whether they will go too far in raising rates, and, in doing so,
slow the global economy.
For our part, we side with the view that the Federal Reserve Board will engineer
a soft landing for the U.S. economy, one in which we will still see good growth,
if not at the rapid pace of recent years. If so, international markets, which
tend to lag the United States in their recovery cycles, should prosper.
5
<PAGE>
Portfolio facts
INVESTMENT OBJECTIVE
J.P. MorganInternational Opportunities Portfolio seeks to provide a high total
return from a portfolio comprised of equity securities of foreign corporations.
The portfolio is designed for investors with a long-term investment horizon who
want to diversify their investments by adding international equities and take
advantage of investment opportunities outside the U.S. As an international
investment, the portfolio is subject to foreign market, political, economic, and
currency risks.
--------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
1/3/95
--------------------------------------------------------------------------------
NET ASSETS AS OF 6/30/00
$27,591,592
--------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES (IF APPLICABLE)
12/20/00
--------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/20/00
EXPENSE RATIO
The portfolio's annualized expense ratio of 1.20%
covers shareholders' expenses for custody, tax reporting, investment advisory
and shareholder services, after reimbursement. The portfolio is no-load and does
not charge any sales, redemption, or exchange fees. There are no additional
charges for buying, selling, safekeeping portfolio shares, or for wiring
redemption proceeds from the portfolio.
Portfolio highlights
ALL DATA AS OF JUNE 30, 2000
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[PIE CHART]
- EUROPE/AFRICA 56%
- JAPAN 18.2%
- ASIA PACIFIC 16.3%
- SHORT-TERM INVESTMENTS 5.2%
- LATIN AMERICA 3.8%
- CANADA 0.5%
<TABLE>
<CAPTION>
LARGEST HOLDINGS
(EXCLUDING SHORT-TERM HOLDINGS) % OF TOTAL INVESTMENTS
----------------------------------------------------------
<S> <C>
Koninklijke (Royal) Phillips
Electronics NV (Netherlands) 3.3%
Vodafone Airtouch PLC (United Kingdom) 3.3%
Alcatel (France) 3.2%
Total Fina Elf SA, B Shares (France) 2.7%
Vivendi SA (France) 2.4%
Rohm Co. Ltd. (Japan) 2.0%
BNP Paribas (France) 1.9%
Fujitsu Ltd. (Japan) 1.9%
Takeda Chemical Industries Ltd. (Japan) 1.8%
Suez Lyonnaisse des Eaux SA (France) 1.8%
</TABLE>
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. IS
THE TRUST'S INVESTMENT ADVISOR. SHARES OF THE PORTFOLIO PRESENTLY ARE OFFERED
ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE ACCOUNTS
ESTABLISHED BY INSURANCE COMPANIES TO FUND VARIABLE ANNUITY CONTRACTS AND
VARIABLE LIFE INSURANCE POLICIES AND QUALIFIED PENSION AND RETIREMENT PLANS
OUTSIDE THE SEPARATE ACCOUNT CONTEXT.
Shares of the portfolio and investments in the variable contracts 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. Reference to specific securities and their issuers should
not be interpreted as recommendations to purchase or sell these securities.
There is no assurance the portfolios will continue to hold these securities.
Opinions expressed herein and other fund data presented are subject to change
without notice. The fund invests in foreign securities, which are subject to
special currency, political, and economic risk.
PLEASE CALL (888) 756-8645 FOR A PROSPECTUS WHICH CONTAINS MORE COMPLETE
INFORMATION, INCLUDING CONTRACT CHARGES AND DEDUCTIONS, AND PORTFOLIO FEES AND
EXPENSES. PLEASE READ THE PROSPECTUSES FOR COMPLETE DETAILS INCLUDING RISK
CONSIDERATIONS.
7
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
------------------------------------------------- ------------- ------------
<S> <C> <C>
COMMON STOCK (88.0%)
AUSTRALIA (3.2%)
News Corp. Ltd. (Broadcasting &
Publishing)(s)................................. 10,900 $ 150,516
Santos Ltd. (Oil-Production)(s).................. 90,000 275,036
Southern Pacific Petroleum NL
(Oil-Services)+(s)............................. 74,816 85,345
WMC Ltd. (Metals & Mining)(s).................... 79,900 358,485
-----------
869,382
-----------
AUSTRIA (0.4%)
Bank Austria AG (Banking)(s)..................... 2,200 107,586
-----------
CANADA (0.5%)
Royal Bank of Canada (Banking)(s)................ 2,650 135,478
-----------
CHINA (0.9%)
Huaneng Power International, Inc. (Spon. ADR)
(Energy Source)(s)............................. 14,200 189,037
Huaneng Power International, Inc., H Shares
(Energy Source)(s)............................. 171,100 55,970
-----------
245,007
-----------
FINLAND (1.0%)
Sampo Insurance Co. Ltd., A Shares
(Insurance)(s)................................. 3,100 126,282
Stora Enso OYJ, R Shares (Forest Products &
Paper)(s)...................................... 17,000 156,026
-----------
282,308
-----------
FRANCE (17.4%)
Alcatel (Telecommunications-Equipment)(s)........ 13,100 862,619
BNP Paribas (Financial Services)(s).............. 5,400 521,729
Carrefour SA (Retail)(s)......................... 2,800 192,159
Christian Dior SA (Apparels & Textiles)(s)....... 699 159,123
Coflexip SA (Oil-Services)(s).................... 2,993 364,335
Compagnie de Saint-Gobain (Building
Materials)(s).................................. 500 67,862
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
------------------------------------------------- ------------- ------------
<S> <C> <C>
FRANCE (CONTINUED)
Groupe Danone (Food, Beverages & Tobacco)(s)..... 880 $ 117,243
Rhodia SA (Chemicals)(s)......................... 15,500 261,478
Sidel SA (Machinery)(s).......................... 2,350 191,347
STMicroelectronics NV (Electronics)(s)........... 3,030 191,680
Suez Lyonnaise des Eaux SA (Utilities)(s)........ 2,700 474,887
Total Fina Elf SA (Oil-Services)+(s)............. 450 4
Total Fina Elf SA, B Shares (Oil-
Services)+(s).................................. 4,800 738,886
Vivendi SA (Utilities)(s)........................ 7,250 642,445
-----------
4,785,797
-----------
GERMANY (1.3%)
Merck KGaA (Pharmaceuticals)(s).................. 1,800 55,209
Schering AG (Pharmaceuticals)(s)................. 5,550 305,348
-----------
360,557
-----------
HONG KONG (4.6%)
Bank of East Asia Ltd. (Banking)(s).............. 94,000 219,466
China Unicom Ltd. (Telecommunication
Services)+(s).................................. 146,000 309,969
China Unicom Ltd. (ADR) (Telecommunication
Services)+(s).................................. 6,900 146,625
Guoco Group Ltd. (Financial Services)(s)......... 15,000 30,114
Hongkong Electric Holdings Ltd. (Electric)(s).... 117,800 379,303
Hutchison Whampoa Ltd. (Multi - Industry)(s)..... 15,100 189,832
-----------
1,275,309
-----------
INDIA (0.6%)
Reliance Industries Ltd. (Spon. GDR) (Diversified
Manufacturing)(s).............................. 8,200 174,250
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
------------------------------------------------- ------------- ------------
<S> <C> <C>
IRELAND (0.1%)
Greencore Group PLC (Food, Beverages &
Tobacco)(s).................................... 12,600 $ 33,816
-----------
ITALY (0.6%)
Bayerische Vita SPA (Insurance)(s)............... 3,000 25,793
UniCredito Italiano SPA (Financial
Services)(s)................................... 29,000 139,260
-----------
165,053
-----------
JAPAN (17.8%)
Chuo Mitsui Trust and Banking Co., Ltd.
(Banking)(s)................................... 17,100 74,668
Dai Nippon Printing Co. Ltd. (Business & Public
Services)(s)................................... 7,000 123,652
Fuji Bank Ltd. (Banking)(s)...................... 30,000 228,534
Fujitsu Ltd. (Computer Systems)(s)............... 15,000 520,297
Honda Motor Co. Ltd. (Automotive)(s)............. 5,000 170,597
Macnica, Inc. (Distributors)(s).................. 1,000 155,002
Mitsubishi Chemical Corp. (Chemicals)(s)......... 92,000 378,243
Mitsubishi Corp. (Wholesale & International
Trade)(s)...................................... 38,000 344,426
Nippon Yusen Kabushiki Kaisha
(Transportation)(s)............................ 41,000 197,628
Nisshin Steel Co., Ltd. (Metals & Mining)(s)..... 102,000 111,828
Paris Miki, Inc. (Retail)(s)..................... 1,858 121,168
Rohm Co., Ltd. (Electronics)(s).................. 1,800 527,385
Softbank Corp. (Computer Software)(s)............ 1,600 217,759
Taiheiyo Cement Corp. (Building Materials)(s).... 39,000 81,830
Takeda Chemical Industries, Ltd.
(Pharmaceuticals)(s)........................... 7,423 488,295
The Tokio Marine & Fire Insurance Co., Ltd.
(Insurance)(s)................................. 25,000 289,211
Toppan Forms Co., Ltd. (Broadcasting &
Publishing)(s)................................. 1,800 42,701
Toppan Printing Co., Ltd. (Broadcasting &
Publishing)(s)................................. 10,000 106,044
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
------------------------------------------------- ------------- ------------
<S> <C> <C>
JAPAN (CONTINUED)
Tostem Corp. (Construction & Housing)(s)......... 9,000 $ 147,158
West Japan Railway Co. (Railroads)(s)............ 39 158,499
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceuticals)(s)........................... 8,000 437,786
-----------
4,922,711
-----------
MEXICO (1.5%)
Consorcio ARA SA de CV (Construction &
Housing)+(s)................................... 74,000 87,205
Grupo Televisa SA (Spon. GDR) (Broadcasting &
Publishing)(s)................................. 4,700 324,006
-----------
411,211
-----------
NETHERLANDS (5.5%)
Akzo Nobel NV (Chemicals)(s)..................... 6,400 272,980
Equant NV (Computer Systems)+(s)................. 2,350 95,865
Heineken Holding NV, Class A (Food, Beverages &
Tobacco)(s).................................... 2,700 105,588
Koninklijke (Royal) Philips Electronics NV
(Electronics)(s)............................... 18,920 895,857
Laurus NV (Retail)(s)............................ 8,100 97,436
Vedior NV (Business & Public Services)(s)........ 3,600 44,685
-----------
1,512,411
-----------
NORWAY (0.3%)
Stolt - Nielsen SA (Spon. ADR)
(Transportation)(s)............................ 4,950 88,791
-----------
PHILIPPINES (0.6%)
ABS - CBN Broadcasting Corporation
(Broadcasting & Publishing)(s)................. 93,000 115,094
First Philippine Holdings Corp. (Multi -
Industry)(s)................................... 72,700 37,838
-----------
152,932
-----------
RUSSIA (1.1%)
Surgutneftegaz (Spon. ADR) (Oil-Production)(s)... 22,300 297,148
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
------------------------------------------------- ------------- ------------
<S> <C> <C>
SINGAPORE (3.6%)
Chartered Semiconductor Manufacturing Ltd.
(Semiconductors)+(s)........................... 3,510 $ 315,900
DBS Group Holdings Ltd. (Financial
Services)(s)................................... 19,000 243,956
Neptune Orient Lines Ltd. (Transportation)(s).... 126,400 116,969
Overseas Union Bank Ltd. (Banking)(s)............ 32,000 124,002
Singapore Press Holdings Ltd. (Broadcasting &
Publishing)(s)................................. 13,000 203,008
-----------
1,003,835
-----------
SOUTH AFRICA (1.1%)
South African Breweries PLC (Food, Beverages &
Tobacco)(s).................................... 42,100 314,198
-----------
SOUTH KOREA (0.7%)
Housing & Commercial Bank (GDR) (Banking)(s)..... 3,002 70,247
Hyundai Motor Co. Ltd. (GDR) (Automotive)(s)..... 20,800 134,160
-----------
204,407
-----------
SPAIN (3.4%)
Acerinox SA (Metals & Mining)(s)................. 3,220 93,517
Actividades de Construccion y Servicios SA
(Construction & Housing(s)..................... 5,400 152,689
Banco Bilbao Vizcaya Argentaria SA
(Banking)+(s).................................. 2,000 363,012
Banco Santander Central Hispano SA
(Banking)(s)................................... 22,000 233,011
Indra Sistemas SA (Information Processing)(s).... 3,909 89,772
-----------
932,001
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
------------------------------------------------- ------------- ------------
<S> <C> <C>
SWEDEN (1.3%)
Autoliv, Inc. (SDR) (Automotive)(s).............. 5,300 $ 130,521
Skandia Forsakrings AB (Insurance)(s)............ 3,800 100,946
Skandinaviska Ensklida Banken (Banking)(s)....... 11,700 139,397
-----------
370,864
-----------
SWITZERLAND (10.4%)
ABB Ltd. (Electrical Equipment)(s)............... 2,050 238,867
Barry Callebaut AG (Food, Beverages &
Tobacco)(s).................................... 250 35,822
Compagnie Financiere Richemont AG (Food,
Beverages & Tobacco)(s)........................ 59 159,464
Credit Suisse Group (Financial Services)(s)...... 1,600 319,292
Givaudan (Personal Care)+(s)..................... 28 8,549
Nestle SA (Food, Beverages & Tobacco)(s)......... 225 451,771
Novartis AG (Pharmaceuticals)(s)................. 188 298,747
Roche Holding AG (Pharmaceuticals)(s)............ 45 439,456
Swiss Re (Insurance)+(s)......................... 164 335,342
Swisscom AG (Telecommunication Services)(s)...... 880 305,762
UBS AG (Banking)(s).............................. 1,820 267,499
-----------
2,860,571
-----------
UNITED KINGDOM (9.4%)
Allied Zurich PLC (Insurance)+(s)................ 23,600 279,192
British Airways PLC (Airlines)(s)................ 25,500 146,685
British American Tobacco PLC (Food, Beverages &
Tobacco)(s).................................... 10,800 72,098
Cable & Wireless PLC (Telecommunications)(s)..... 9,000 152,452
CGNU PLC (Insurance)+(s)......................... 7,344 122,289
Lloyds TSB Group PLC (Banking)(s)................ 6,100 57,620
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
------------------------------------------------- ------------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
National Power PLC (Electric)(s)................. 11,400 $ 72,652
Railtrack Group PLC (Transportation)(s).......... 7,300 113,434
Royal & Sun Alliance Insurance Group PLC
(Insurance)(s)................................. 46,100 299,378
Shell Transport & Trading Co.
(Oil-Services)(s).............................. 30,800 257,133
Tesco PLC (Retail)+(s)........................... 44,300 137,809
Vodafone AirTouch PLC (Telecommunications)(s).... 220,698 892,013
-----------
2,602,755
-----------
VENEZUELA (0.7%)
Compania Anonima Nacional Telefonos de Venezuela
(ADR)(s)....................................... 6,600 179,438
-----------
TOTAL COMMON STOCK (COST $21,990,844).......... 24,287,816
-----------
PREFERRED STOCK (3.0%)
AUSTRALIA (1.1%)
News Corp. Ltd. (Broadcasting &
Publishing)(s)................................. 24,900 301,458
-----------
BRAZIL (1.6%)
Embratel Participacoes SA (ADR)
(Telecommunication Services)(s)................ 18,876 445,945
-----------
GERMANY (0.3%)
Marschollek, Lautenschlaeger und Partner AG - VO
(Financial Services)(s)........................ 170 84,422
-----------
TOTAL PREFERRED STOCK (COST $640,992).......... 831,825
-----------
<CAPTION>
PRINCIPAL
AMOUNT
(IN USD)
-------------
<S> <C> <C>
CONVERTIBLE BONDS (1.8%)
CHINA (0.6%)
Huaneng Power International, 1.75%(y) due
05/21/04 (Energy Source)....................... $ 150,000 167,250
-----------
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (IN USD) VALUE
------------------------------------------------- ------------- ------------
<S> <C> <C>
NETHERLANDS (1.2%)
Telefonica Europe BV, 2.00%(y) due 07/15/02
(Telecommunication Services)................... $ 153,000 $ 333,061
-----------
TOTAL CONVERTIBLE BONDS (COST $427,541)........ 500,311
-----------
SHORT-TERM INVESTMENTS (5.1%)
OTHER INVESTMENT COMPANIES (4.4%)
Hamilton Money Fund.............................. 1,222,757 1,222,757
-----------
U.S. TREASURY OBLIGATIONS (0.7%)
United States Treasury Bills, 5.98%(y) due
10/12/00(s).................................... 180,000 177,086
-----------
TOTAL SHORT-TERM INVESTMENTS (COST
$1,399,812)................................... 1,399,843
-----------
TOTAL INVESTMENTS (COST
$24,459,189) (97.9%).......................................... 27,019,795
OTHER ASSETS IN EXCESS OF LIABILITIES (2.1%)....................
571,797
-----------
NET ASSETS (100.0%)............................................. $27,591,592
===========
</TABLE>
------------------------------
Note: Based on the cost of investments of $24,459,189 for federal income tax
purposes at June 30, 2000 the aggregate gross unrealized appreciation and
depreciation was $3,808,834 and $1,248,228, respectively, resulting in net
unrealized appreciation of $2,560,606.
+ - Non-income producing securities.
(s) - Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$10,153,592 of the market value has been segregated.
(y) - Yield to maturity.
ADR - American Depository Receipt.
GDR - Global Depository Receipt.
SDR - Swedish Depository Receipt.
Spon. ADR - Sponsored ADR.
Spon. GDR - Sponsored GDR.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
----------------
<S> <C>
Banking........................................... 7.5%
Electronics....................................... 6.3%
Insurance......................................... 5.8%
Pharmaceuticals................................... 5.7%
Oil - Services.................................... 5.4%
Chemicals......................................... 5.2%
Short-Term........................................ 5.2%
Telecommunications-Services....................... 5.1%
Financial Services................................ 5.0%
Food, Beverages & Tobacco......................... 4.8%
Broadcasting & Publishing......................... 4.6%
Utilities......................................... 4.1%
Telecommunications................................ 3.9%
Telecommunications-Equipment...................... 3.2%
Transportation.................................... 3.1%
Retail............................................ 2.6%
Computer Systems.................................. 2.3%
Oil - Production.................................. 2.1%
Metals & Mining................................... 2.1%
Electric.......................................... 1.7%
Energy Source..................................... 1.5%
Construction & Housing............................ 1.4%
Wholesale & International Trade................... 1.3%
Semiconductors.................................... 1.2%
Automotive........................................ 1.1%
Electrical Equipment.............................. 0.9%
Multi-Industry.................................... 0.8%
Computer Software................................. 0.8%
Machinery......................................... 0.7%
Diversified Manufacturing......................... 0.6%
Business & Public Services........................ 0.6%
Railroads......................................... 0.6%
Forest Products & Paper........................... 0.6%
Distributors...................................... 0.6%
Building Materials................................ 0.6%
Airlines.......................................... 0.5%
Automotive Supplies............................... 0.5%
-----
100.0%
=====
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $24,459,189 ) $27,019,795
Foreign Currency at Value (Cost $290,704 ) 289,870
Receivable for Investments Sold 280,240
Unrealized Appreciation of Forward Foreign
Currency Contracts 155,202
Receivable for Shares of Beneficial Interest Sold 50,399
Foreign Tax Reclaim Receivable 40,154
Dividends and Interest Receivable 26,938
Receivable for Expense Reimbursements 23,212
Variation Margin Receivable 8,828
Prepaid Trustees' Fees 2,984
Prepaid Expenses and Other Assets 1,085
-----------
Total Assets 27,898,707
-----------
LIABILITIES
Unrealized Depreciation of Forward Foreign
Currency Contracts 203,419
Payable for Shares of Beneficial Interest
Redeemed 16,931
Advisory Fee Payable 12,941
Payable for Investments Purchased 5,289
Administration Fee Payable 6
Accrued Expenses 68,529
-----------
Total Liabilities 307,115
-----------
NET ASSETS
Applicable to 2,081,852 Shares of Beneficial
Interest Outstanding (no par value, unlimited
shares authorized) $27,591,592
===========
Net Asset Value, Offering and Redemption Price
per Share $13.25
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $24,189,456
Undistributed Net Investment Income 68,638
Accumulated Net Realized Gain on Investments,
Futures and Foreign Currency Contracts and
Transactions 814,118
Net Unrealized Appreciation of Investments,
Futures and Foreign Currency Contracts and
Translations 2,519,380
-----------
Net Assets $27,591,592
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $31,774 ) $ 230,250
Interest Income 48,450
-----------
Investment Income 278,700
EXPENSES
Advisory Fee $ 71,609
Custodian Fees and Expenses 63,995
Fund Accounting Expense 17,565
Professional Fees and Expenses 15,515
Transfer Agent Expense 8,114
Printing Expenses 7,337
Trustees' Fees and Expenses 6,364
Insurance Expense 454
Administration Fee 79
Amortization of Organization Expense 25
Miscellaneous 1,131
-----------
Total Expenses 192,188
Less: Reimbursement of Expenses (48,946)
-----------
NET EXPENSES 143,242
-----------
NET INVESTMENT INCOME 135,458
NET REALIZED GAIN (LOSS) ON
Investments 902,548
Futures Contracts 87,204
Foreign Currency Contracts and Transactions (163,490)
-----------
Net Realized Gain 826,262
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investments (1,449,442)
Futures Contracts (117,980)
Foreign Currency Contracts and Translations (47,284)
-----------
Net Change in Unrealized Depreciation (1,614,706)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (652,986)
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 135,458 $ 117,772
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 826,262 1,305,710
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (1,614,706) 3,633,949
------------ ----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (652,986) 5,057,431
------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (67,137) (142,033)
Net Realized Gain -- (601,784)
------------ ----------------
Total Distributions to Shareholders (67,137) (743,817)
------------ ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Proceeds from Shares of Beneficial Interest Sold 27,645,564 36,812,761
Reinvestment of Dividends and Distributions 67,137 743,825
Cost of Shares of Beneficial Interest Redeemed (21,705,252) (29,353,544)
------------ ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 6,007,449 8,203,042
------------ ----------------
Total Increase in Net Assets 5,287,326 12,516,656
NET ASSETS
Beginning of Period 22,304,266 9,787,610
------------ ----------------
End of Period (including undistributed net
investment income of $68,638 and $317,
respectively) $ 27,591,592 $ 22,304,266
============ ================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE FISCAL JANUARY 3, 1995
MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
JUNE 30, 2000 --------------------------------------------------- OPERATIONS) TO
(UNAUDITED) 1999 1998 1997 1996 DECEMBER 31, 1995
-------------- --------- --------- --------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.83 $ 10.52 $10.60 $11.73 $10.86 $10.00
------- ------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.07 0.11 0.14 0.15 0.20 0.15
Net Realized and Unrealized Gain
(Loss) on Investments, Futures and
Foreign Currency Contracts and
Transactions (0.61) 3.71 0.40 0.44 1.23 1.08
------- ------- ------ ------ ------ ------
Total from Investment Operations (0.54) 3.82 0.54 0.59 1.43 1.23
------- ------- ------ ------ ------ ------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.04) (0.11) (0.16) (0.41) (0.09) (0.09)
Net Realized Gain -- (0.40) -- (1.31) (0.47) (0.18)
In Excess of Net Realized Gain -- -- (0.46) -- -- --
Return of Capital -- -- -- -- -- (0.10)
------- ------- ------ ------ ------ ------
Total Distributions to Shareholders (0.04) (0.51) (0.62) (1.72) (0.56) (0.37)
------- ------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 13.25 $ 13.83 $10.52 $10.60 $11.73 $10.86
======= ======= ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA
Total Return (3.93)%(a) 36.66% 4.73% 5.43% 13.12% 12.38%(a)
Net Assets, End of Period (in
thousands) $27,592 $22,304 $9,788 $6,780 $6,250 $3,992
Ratios to Average Net Assets
Net Expenses 1.20%(b) 1.20% 1.20% 1.20% 1.20% 1.20%(b)
Net Investment Income 1.13%(b) 0.85% 0.44% 0.88% 1.25% 1.06%(b)
Expenses Without Reimbursement 1.61%(b) 1.98% 3.26% 4.25% 3.18% 3.16%(b)
Portfolio Turnover 39%(a) 66% 127% 149% 71% 68%
</TABLE>
------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan International Opportunities Portfolio (the "portfolio") is one of
four portfolios comprising The J.P. Morgan Series Trust II (the "trust"). The
trust is registered under the Investment Company Act of 1940, as amended, as a
no-load open-end management investment company. The trust was organized as a
Delaware Business Trust on October 28, 1993 for the purpose of funding flexible
premium variable life insurance policies. The trust is composed of four separate
portfolios which operate as distinct investment vehicles. The investment
objective of the portfolio is to provide a high total return from a portfolio of
equity securities of foreign corporations.
The portfolio may have elements of risk not typically associated with
investments in the United States due to concentrated investments in a limited
number of countries or regions which may vary throughout the year. Such
concentrations may subject the portfolio to additional risks resulting from
political or economic conditions in such countries or regions and the possible
imposition of adverse governmental laws or currency exchange restrictions
affecting such countries or regions which could cause the securities and their
markets to be less liquid and prices more volatile than those comparable to the
United States. The ability of the issuers of debt securities held by the
portfolio to meet their obligations may be affected by economic and political
developments in a specific industry or region.
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 portfolio:
a) The portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked prices in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the portfolio's Trustees.
All short-term securities with a remaining maturity of sixty days or less
are valued using the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the
17
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
exchange on which they are traded closes and the time when the portfolio's
net assets are calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general
supervision of the portfolio's trustees.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expense are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations. Although the net assets of the portfolio are
presented at the exchange rates and market values prevailing at the end of
the period, the portfolio does not isolate the portion of the results of
operations arising as a result of changes in foreign exchange rates from
the fluctuations arising from changes in the market prices of securities
during the period.
c) 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 become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. Amortization is calculated using the scientific
method. For financial and tax reporting purposes, realized gains and
losses are determined on the basis of first in first out.
d) Distributions to shareholders of net investment income and net realized
capital gains, if any, are declared and paid semi-annually.
e) The portfolio incurred organization expenses in the amount of $9,834.
These costs were deferred and were amortized on a straight-line basis over
a five-year period from the commencement of operations.
f) Expenses incurred by the trust with respect to any two or more portfolios
in the trust are allocated in proportion to the net assets of each
portfolio in the trust, except where allocations of direct expenses to
each portfolio can otherwise be made fairly. Expenses directly
attributable to a portfolio are charged to that portfolio.
g) The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates and to enhance returns. A
forward contract is an agreement to buy or sell currencies of different
countries on a specified future date at a specified rate. Risks associated
with such contracts include the movement in the value of the foreign
currency relative to the U.S. dollar and the ability of the counterparty
to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations.
h) A futures contract is an agreement to purchase/sell a specified quantity
of an underlying instrument at a specified future date or to make/receive
a cash payment based on the value of a securities index. The price at
which the purchase and sale will take place is fixed when the portfolio
enters into the contract. Upon entering into such a contract, the
portfolio is required to pledge to the broker an amount of cash
18
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
and/or liquid securities equal to the minimum "initial margin"
requirements of the exchange. Pursuant to the contract, the portfolio
agrees to receive from, or pay to, the broker an amount of cash equal to
the daily fluctuation in the value of the contract. Such receipts or
payments are known as "variation margin" and are recorded by the portfolio
as unrealized gains or losses. When the contract is closed, the portfolio
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time when
it was closed. The portfolio invests in futures contracts for the purpose
of hedging its existing portfolio securities, or securities the portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movements. The use of
futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts.
i) The portfolio is treated as a separate entity for federal income tax
purposes and intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, (the code) 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.
The portfolio is also a segregated portfolio of assets for insurance
purposes and intends to comply with the diversification requirements of
Subchapter L of the code. The portfolio may be subject to taxes imposed by
countries in which it invests. Such taxes are generally based on income
and/ or capital gains earned. Taxes are accrued and applied to net
investment income, net realized capital gains and unrealized appreciation,
as applicable, as the income and/or capital gains are earned.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan"), a wholly-owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan" ). Under the terms of the
agreement, the portfolio pays JPMIM at an annual rate of 0.60% of the
portfolio's average daily net assets. For the six months ended June 30,
2000, such fees amounted to $71,609.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
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 portfolio 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 portfolio is based on
the ratio of the portfolio's net assets to the aggregate net assets of the
portfolio and certain other investment companies subject to similar
agreements with FDI. For the six months ended June 30, 2000, the fee for
these services amounted to $79.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for certain
aspects of the administration and operation of the portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee based on
the following: if total expenses of the portfolio, excluding the advisory
fees, exceed the expense limit of
19
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
0.60% of the average daily net assets of the portfolio, Morgan will
reimburse the portfolio for the excess amount and receive no fee. Should
such expenses be less than the expense limit, Morgan's fee would be
limited to the difference between such expenses and the fees calculated
under the Services Agreement. For the six months ended June 30, 2000,
Morgan has agreed to reimburse the portfolio $48,946 under this agreement.
d) An aggregate annual fee of $21,500 is paid to each trustee for serving as
a trustee of the trust. The Trustees' Fees and Expenses shown in the
financial statements represents the portfolio's allocated portion of the
total fees and expenses.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares.
Transactions in shares of beneficial interest of the portfolio were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Shares of Beneficial Interest Sold............... 2,115,683 3,059,271
Reinvestment of Dividends and Distributions...... 5,257 57,413
Shares of Beneficial Interest Redeemed........... (1,652,223) (2,433,600)
------------- ----------------
Net Increase..................................... 468,717 683,084
============= ================
</TABLE>
From time to time, the portfolio may have a concentration of several
shareholders holding a significant percentage of shares outstanding. Investment
activities of these shareholders could have a material impact on the portfolio.
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
--------- ----------
<S> <C>
$ 15,520,520 $8,486,558
</TABLE>
At June 30, 2000 the portfolio had open futures contracts as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ------------
<S> <C> <C> <C>
DJ Euro Stoxx50, expiring September 2000......... 14 $ 2,367 $ 697,383
FTSE 100 Index, expiring September 2000.......... 4 (1,464) 384,923
Topix Index, expiring September 2000............. 2 4,821 300,836
------------- ------------- -----------
Totals........................................... 20 $ 5,724 $ 1,383,142
============= ============= ===========
</TABLE>
20
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
At June 30, 2000, the portfolio had open forward currency contracts as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
VALUE 6/30/00 (DEPRECIATION)
----------- ----------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
Canadian Dollar 1,195,948, expiring 08/18/00..... $ 805,895 $ 808,039 $ 2,144
Canadian Dollar 392,689 for EUR 277,000, expiring
08/17/00........................................ 266,295 265,319 (976)
Euro 3,404,000, expiring 08/17/00................ 3,209,505 3,268,796 59,291
Euro 1,063,503, expiring 08/18/00................ 971,475 1,022,404 50,929
Euro 181,113 for CHF 280,000, expiring
08/17/00........................................ 172,942 174,113 1,171
Euro 77,569 for CHF 120,000, expiring 08/18/00... 74,118 74,572 454
Euro 140,000 for JPY 14,280,840, expiring
08/17/00........................................ 136,103 134,590 (1,513)
Euro 140,000 for JPY 14,231,504, expiring
08/17/00........................................ 135,633 134,590 (1,043)
Japanese Yen 102,889,496, expiring 08/17/00...... 975,000 980,583 5,583
Japanese Yen 60,863,762, expiring 08/18/00....... 570,000 580,057 10,057
Japanese Yen 25,000,000 for SEK 2,049,180,
expiring 08/17/00............................... 234,450 238,261 3,811
Japanese Yen 48,596,000 for EUR 500,000, expiring
08/17/00........................................ 480,678 463,142 (17,536)
Norwegian Krone 752,023 for SEK 752,023, expiring
08/17/00........................................ 86,040 87,984 1,944
Pound Sterling 1,214,139, expiring 08/17/00...... 1,826,402 1,839,656 13,254
Pound Sterling 125,654 for EUR 200,000, expiring
08/17/00........................................ 192,271 190,390 (1,881)
Swedish Krona 1,220,369, expiring 08/18/00....... 135,296 139,625 4,329
SETTLEMENT
VALUE
----------
SALES CONTRACTS
Australian Dollar 528,935, expiring 08/18/00..... $ 304,534 317,806 (13,272)
Australian Dollar 365,000, expiring 08/21/00..... 211,251 219,307 (8,056)
Euro 1,273,000, expiring 08/17/00................ 1,193,884 1,223,804 (29,920)
Euro 956,000, expiring 08/18/00.................. 868,724 919,055 (50,331)
Hong Kong Dollar 1,700,000, expiring 08/17/00.... 218,173 218,207 (34)
Hong Kong Dollar 3,698,012, expiring 08/18/00.... 474,420 474,665 (245)
Japanese Yen 41,383,400, expiring 08/17/00....... 392,862 394,402 (1,540)
Japanese Yen 91,750,194, expiring 08/18/00....... 856,517 874,420 (17,903)
Norwegian Krone 892,787, expiring 08/18/00....... 99,531 104,453 (4,922)
Pound Sterling 108,000, expiring 08/17/00........ 161,689 163,641 (1,952)
Singapore Dollar 1,303,851, expiring 08/18/00.... 760,263 758,028 2,235
South African Rand 1,310,000, expiring
08/17/00........................................ 185,694 192,360 (6,666)
Swiss Franc 440,000, expiring 08/17/00 .......... 221,562 228,530 (6,968)
Swiss Franc 1,305,252, expiring 08/18/00 ........ 767,528 806,189 (38,661)
-------------
NET UNREALIZED DEPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ (48,217)
=============
</TABLE>
21
<PAGE>
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