<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN BOND PORTFOLIO
February 1, 2000
Dear Shareholder:
The J.P. Morgan Bond Portfolio posted a return of -1.13% for the year ended
December 31, 1999. The portfolio underperformed its benchmark, the Salomon Broad
Investment Grade Bond Index, which returned -0.83%, but outperformed its peer
group, the Lipper Variable Annuity Corporate Debt A-Rated Average, which
returned -1.94% for the period.
The portfolio's net asset value per share decreased from $11.67 on December 31,
1998, to $11.23 on December 31, 1999. During the year, the portfolio paid
approximately $0.23 per share from net investment income, and approximately
$0.01 per share from short-term capital gains, and $0.03 from long-term capital
gains. The portfolio's total net assets increased from $32.5 million on December
31, 1998, to $66.2 million at the end of the reporting period.
The report that follows includes detailed performance information about the J.P.
Morgan Bond Portfolio, as well as an interview with William Tennille, the
portfolio manager primarily responsible for the portfolio. In this interview,
Bill discusses events in the fixed income market, portfolio performance, and
what he sees on the horizon.
As chairman and president of Asset Management Services, we thank you for your
participation in the J.P. Morgan Bond Portfolio. We look forward to sharing
Morgan's insights regarding financial markets with you in the future. If you
have any comments or questions, please call the trust's distributor, Funds
Distributor, Inc., 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 OF CONTENTS
LETTER TO THE SHAREHOLDERS..........1 PORTFOLIO FACTS AND HIGHLIGHTS .....5
PORTFOLIO PERFORMANCE...............2 FINANCIAL STATEMENTS................8
PORTFOLIO MANAGER Q&A...............3
- -------------------------------------------------------------------------------
1
<PAGE>
PORTFOLIO PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested in the portfolio on
January 3, 1995* would have been worth $13,948 at December 31, 1999.
Another way to look at performance is to review the average annual total return.
This figure takes the actual (or cumulative) return and shows what would have
happened if the portfolio 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 10 years (or
since inception). Total returns for periods of less than one year are not
annualized and provide a picture of how a fund has performed over the short
term.
GROWTH OF $10,000 SINCE INCEPTION
JANUARY 3, 1995* -- DECEMBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
Series Trust II Lipper Corporate
Bond - Salomon Broad Debt A-Rated
JOB #1904 Investment Grade Average
Initial Investment 10,000,000 Initial Investment 10,000,000 Initial Investment 10,000,000
MONTHLY PLOT MONTHLY PLOT MONTHLY PLOT
RETURNS POINTS RETURNS POINTS RETURNS POINTS
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 10,000 12/31/94 10,000 12/31/94 10,000
1/31/95 1.50% 10,150 1/31/95 2.07% 10,207 1/31/95 1.71% 10,171
2/28/95 1.67% 10,320 2/28/95 2.34% 10,446 2/28/95 2.25% 10,400
3/31/95 0.39% 10,360 3/31/95 0.58% 10,506 3/31/95 0.64% 10,466
4/30/95 1.25% 10,490 4/30/95 1.37% 10,650 4/30/95 1.36% 10,609
5/31/95 4.00% 10,910 5/31/95 3.97% 11,073 5/31/95 4.25% 11,060
6/30/95 0.82% 11,000 6/30/95 0.70% 11,151 6/30/95 0.68% 11,135
7/31/95 -0.45% 10,950 7/31/95 -0.20% 11,128 7/31/95 -0.45% 11,085
8/31/95 1.28% 11,090 8/31/95 1.15% 11,256 8/31/95 1.40% 11,240
9/30/95 0.90% 11,190 9/30/95 0.94% 11,362 9/30/95 1.10% 11,364
10/31/95 1.52% 11,360 10/31/95 1.34% 11,514 10/31/95 1.53% 11,537
11/30/95 1.41% 11,520 11/30/95 1.56% 11,694 11/30/95 1.60% 11,722
12/31/95 1.47% 11,689 12/31/95 1.38% 11,855 12/31/95 1.56% 11,905
1/31/96 0.64% 11,764 1/31/96 0.68% 11,936 1/31/96 0.50% 11,964
2/29/96 -2.28% 11,497 2/29/96 -1.70% 11,733 2/29/96 -2.16% 11,706
3/31/96 -0.99% 11,383 3/31/96 -0.72% 11,649 3/31/96 -0.79% 11,613
4/30/96 -0.66% 11,308 4/30/96 -0.74% 11,562 4/30/96 -0.73% 11,529
5/31/96 -0.47% 11,254 5/31/96 -0.05% 11,557 5/31/96 -0.23% 11,502
6/30/96 1.33% 11,405 6/30/96 1.29% 11,706 6/30/96 1.22% 11,643
7/31/96 0.19% 11,426 7/31/96 0.27% 11,737 7/31/96 0.23% 11,669
8/31/96 -0.28% 11,394 8/31/96 -0.15% 11,720 8/31/96 -0.21% 11,645
9/30/96 1.60% 11,576 9/30/96 1.74% 11,924 9/30/96 1.75% 11,849
10/31/96 2.13% 11,823 10/31/96 2.25% 12,192 10/31/96 2.20% 12,109
11/30/96 1.72% 12,027 11/30/96 1.65% 12,393 11/30/96 1.79% 12,326
12/31/96 -0.80% 11,931 12/31/96 -0.88% 12,284 12/31/96 -0.95% 12,209
1/31/97 0.09% 11,942 1/31/97 0.38% 12,331 1/31/97 0.22% 12,236
2/28/97 0.56% 12,009 2/28/97 0.11% 12,344 2/28/97 0.30% 12,272
3/31/97 -1.17% 11,869 3/31/97 -1.01% 12,220 3/31/97 -1.21% 12,124
4/30/97 1.23% 12,015 4/30/97 1.43% 12,394 4/30/97 1.37% 12,290
5/31/97 1.03% 12,139 5/31/97 0.94% 12,511 5/31/97 0.92% 12,403
6/30/97 1.02% 12,263 6/30/97 1.19% 12,660 6/30/97 1.26% 12,559
7/31/97 2.94% 12,623 7/31/97 2.71% 13,003 7/31/97 2.92% 12,926
8/31/97 -0.89% 12,510 8/31/97 -0.86% 12,891 8/31/97 -1.08% 12,787
9/30/97 1.44% 12,690 9/30/97 1.47% 13,081 9/30/97 1.60% 12,991
10/31/97 1.24% 12,848 10/31/97 1.43% 13,268 10/31/97 1.25% 13,154
11/30/97 0.53% 12,915 11/30/97 0.47% 13,330 11/30/97 0.45% 13,213
12/31/97 1.04% 13,050 12/31/97 1.02% 13,466 12/31/97 1.05% 13,351
1/31/98 1.24% 13,212 1/31/98 1.29% 13,640 1/31/98 1.26% 13,520
2/28/98 -0.09% 13,200 2/28/98 -0.07% 13,630 2/28/98 -0.10% 13,506
3/31/98 0.44% 13,258 3/31/98 0.39% 13,683 3/31/98 0.36% 13,555
4/30/98 0.49% 13,323 4/30/98 0.52% 13,754 4/30/98 0.48% 13,620
5/31/98 0.96% 13,450 5/31/98 0.96% 13,886 5/31/98 1.05% 13,763
6/30/98 0.78% 13,555 6/30/98 0.82% 14,000 6/30/98 0.87% 13,883
7/31/98 0.09% 13,566 7/31/98 0.21% 14,030 7/31/98 0.13% 13,901
8/31/98 1.54% 13,775 8/31/98 1.53% 14,244 8/31/98 1.24% 14,073
9/30/98 2.11% 14,065 9/30/98 2.36% 14,581 9/30/98 2.28% 14,394
10/31/98 -0.74% 13,961 10/31/98 -0.45% 14,515 10/31/98 -0.87% 14,269
11/30/98 0.58% 14,042 11/30/98 0.55% 14,595 11/30/98 0.78% 14,380
12/31/98 0.37% 14,095 12/31/98 0.31% 14,640 12/31/98 0.40% 14,437
1/31/99 0.51% 14,167 1/31/99 0.74% 14,748 1/31/99 0.72% 14,541
2/28/99 -1.71% 13,926 2/28/99 -1.75% 14,490 2/28/99 -2.12% 14,233
3/31/99 0.87% 14,046 3/31/99 0.57% 14,573 3/31/99 0.67% 14,328
4/30/99 0.33% 14,092 4/30/99 0.33% 14,621 4/30/99 0.31% 14,373
5/31/99 -1.30% 13,909 5/31/99 -0.92% 14,486 5/31/99 -1.17% 14,205
6/30/99 -0.61% 13,824 6/30/99 -0.34% 14,437 6/30/99 -0.48% 14,137
7/31/99 -0.35% 13,775 7/31/99 -0.40% 14,379 7/31/99 -0.40% 14,080
8/31/99 -0.18% 13,751 8/31/99 -0.07% 14,369 8/31/99 -0.23% 14,048
9/30/99 0.98% 13,885 9/30/99 1.20% 14,541 9/30/99 1.08% 14,199
10/31/99 0.44% 13,946 10/31/99 0.30% 14,585 10/31/99 0.17% 14,223
11/30/99 0.17% 13,970 11/30/99 -0.01% 14,585 11/30/99 0.07% 14,233
12/31/99 -0.16% 13,948 12/31/99 -0.46% 14,518 12/31/99 -0.50% 14,162
6.88% 7.74%
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------ ----------------------------------
THREE SIX ONE THREE SINCE
AS OF DECEMBER 31, 1999 MONTHS MONTHS YEAR YEARS INCEPTION*
- ------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Bond Portfolio 0.37% 0.81% -1.13% 5.32% 6.86%
Salomon Broad Investment Grade Bond Index** -0.16% 0.56% -0.83% 5.73% 7.74%
Lipper Variable Annuity
Corporate Debt A-Rated Average -0.22% 0.21% -1.94% 5.06% 7.19%
</TABLE>
*1/3/95 -- COMMENCEMENT OF OPERATIONS.
**THE SALOMON BROAD INVESTMENT GRADE BOND INDEX IS AN UNMANAGED, MARKET-WEIGHTED
INDEX THAT CONTAINS APPROXIMATELY 4,700 INDIVIDUALLY PRICED INVESTMENT GRADE
BONDS. THE INDEX DOES NOT INCLUDE FEES OR EXPENSES AND IS NOT AVAILABLE FOR
ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PORTFOLIO RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF PORTFOLIO DISTRIBUTIONS, AS DESCRIBED IN THE
PROSPECTUS. 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. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The following is an interview with WILLIAM G. TENNILLE, vice president and
member of the portfolio management team for the portfolio. Bill joined Morgan in
1992 and has extensive experience across a broad range of markets, including
mortgage securities and derivatives. This interview was conducted on January 25,
2000 and reflects Bill's views on that date.
WHAT FACTORS HAVE MOST INFLUENCED THE FIXED INCOME MARKETS OVER THE PAST TWELVE
MONTHS?
WT: 1999 was a volatile year for the financial markets and kept the U.S. Federal
Reserve on its toes. The crises that plagued the global economy from August
through October 1998 prompted the Fed to act three times in the last four months
of that year, lowering the federal funds rate 75 basis points to 4.75%. These
actions helped keep the global economy on an even keel and promoted growth
within the U.S. economy. The Fed then found itself with an economy growing above
trend albeit with benign inflation and subdued wage pressures. In an effort to
slow growth and create a "soft landing" the Fed raised rates twice during the
summer (in June and August), and then again at the November FOMC meeting,
bringing the fed funds rate back up to 5.50%. The Fed remains anxious that the
economy, should it continue at above-trend growth, may reach levels at which it
would no longer be able to contain price pressures.
At the same time that the Fed was tightening monetary policy, however, a
liquidity crunch was developing. Market makers, leery of taking risks following
last fall's crises, dramatically reduced their inventories. In addition, there
was a general undercurrent of "what if Y2K really is a problem" that had both
investors and issuers heading for the sidelines for the last few months of 1999.
Many issuers front-loaded issuance, going to market earlier in the year, while
others set maturities for late January into February to avoid potential year-end
complications. This was happening in the context of a somewhat longer-term
trend: because of the budget surplus, the Treasury has been able, and will
continue, to reduce issuance. The third trend that had a significant impact was
a tiering in the market. Issues of $500 million and larger traded relatively
easily at small price spreads, while most, if not all, smaller issues traded
infrequently at wider spreads. We are seeing some easing of the liquidity and
tiering conditions now that we're safely through Y2K.
HOW DID THE PORTFOLIO PERFORM DURING THAT TIME?
WT: In the fiscal year just ended, we benefited from the narrowing of spreads
that began in late-1998 and carried into early-1999, but lost some ground in the
spring when spreads began widening again in anticipation of Fed rate hikes.
During June, the markets were quite volatile as the Fed first raised the fed
funds rate. In the latter half of the period, performance benefited as we
increased our holdings in spread sectors; poor liquidity held spreads at wider
levels than normal. In the past quarter, the market noticeably calmed down,
3
<PAGE>
which produced better results in most of the spread sectors, the exception being
high-yield corporate debt, which struggled all year in sympathy with the equity
markets. We were overweight substantially in many of the sectors through most of
fourth quarter - mortgage-backed securities in particular, but initiated a short
spread-product position as well as a short duration position at the beginning of
January (2000) in anticipation of rising rates. The year ended December 31, was,
again, one of significant changes and disruptions in the bond markets. We
believe that the global markets are, at last, recovered to a point where
volatility should diminish to more "normal" levels, thereby allowing the markets
to return to business as usual.
WHAT DO YOU SEE AHEAD FOR THESE MARKETS? HOW WILL YOU POSITION THE PORTFOLIO AS
A RESULT?
WT: The Fed has been caught in an interesting position: it has had to provide
liquidity at a time when it also has had to raise interest rates to dampen
growth. The Fed added liquidity over year-end through a currency facility, a
bank loan facility (through the discount loan window), and a temporarily
expanded repo facility. Although this kept interest rates contained through
year-end, they "popped" when the facilities were closed, and they have continued
to rise. In addition to the accommodative actions of the Fed, the Treasury
issued cash management bills over year-end and Fannie Mae instituted weekly 3-
and 6-month auctions. As the two issue more, we have been getting very
attractive yields relative to agency paper. Although the most recent Fed hike
completes the take-back of last year's easings, we still expect further rate
increases in the next few months. While wage pressures may still be in check,
the size of the current account deficit and, of course, the continued strength
of the economy, are concerns for the Fed.
Issuance on the whole has remained scant even in early January. We think,
however, this will change going into February. Because rates have backed up so
far, we believe that the fixed income markets are at or close to value. We moved
to a neutral duration position recently. We are waiting to see what happens in
the economy, and if inflation creeps in, we will go short again; however,
because we believe we are in value territory as far as interest rates go, it
seems more likely at the moment that we might actually go modestly long in
duration.
4
<PAGE>
PORTFOLIO FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Bond Portfolio seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity. The portfolio is designed
for investors who seek a total return over time that is higher than that
generally available from a portfolio of short-term obligations while
acknowledging greater price fluctuation of longer-term instruments.
- -------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
1/3/95
- -------------------------------------------------------------------------------
NET ASSETS AS OF 12/31/99
$66,218,084
- -------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES (IF APPLICABLE)
4/21/00, 12/13/00
- -------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
4/21/00, 12/13/00
EXPENSE RATIO
The portfolio's annualized expense ratio of 0.75% covers shareholders' expenses
for custody, tax reporting, investment advisory and shareholder services. 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 DECEMBER 31, 1999
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
U.S. GOVERNMENT AGENCY OBLIGATIONS 41.20%
CORPORATE OBLIGATIONS 23.50%
COLLATERALIZED MORTGAGE OBLIGATIONS & ASSET BACKED SECURITIES 14.40%
U.S.TREASURY OBLIGATIONS 11.60%
SOVEREIGN BONDS 3.50%
FOREIGN CORPORATE OBLIGATIONS 2.00%
FOREIGN GOVERNMENT OBLIGATIONS 0.40%
CERTIFICATES OF DEPOSIT - FOREIGN 0.10%
CONVERTIBLE PREFERRED STOCKS 0.10%
SHORT-TERM INVESTMENTS* 3.20%
DURATION
7.54 years
QUALITY BREAKDOWN
AAA** 75%
AA 5%
A 6%
Other 14%
*SHORT-TERM HOLDINGS EXCLUDE CASH COLLATERAL INVESTED IN SHORT-TERM SECURITIES
USED FOR PURCHASES MADE BUT NOT YET SETTLED.
**INCLUDES U.S. GOVERNMENT AGENCY OBLIGATIONS, U.S. TREASURY OBLIGATIONS, AND
SHORT-TERM INVESTMENTS.
5
<PAGE>
LARGEST HOLDINGS
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
(EXCLUDING SHORT-TERM HOLDINGS) INVESTMENTS (EXCLUDING SHORT-TERM HOLDINGS) INVESTMENTS
- ------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
FNMA TBA, JANUARY, 7.500% DUE 01/01/30 8.53% U.S. TREASURY NOTE, 5.625% DUE 09/30/01 3.70%
FNMA TBA, JANUARY, 6.000% DUE 01/01/30 8.07% FNMA TBA, JANUARY 6.500% DUE 01/01/29 3.05%
FNMA TBA, JANUARY, 7.000% DUE 01/01/30 8.03% CHASE MANHATTAN BANK - FIRST UNION
FNMA TBA, JANUARY, 6.500% DUE 01/01/30 6.07% NATIONAL, 7.439% DUE 07/15/09 3.05%
U.S. TREASURY BOND, 8.875% DUE 02/15/19 3.91% GNMA, 7.500% DUE 02/15/27 3.00%
U.S. TREASURY BOND, 6.125% DUE 08/15/29 2.68%
</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 are for illustrative
purposes only and should not be interpreted as recommendations to purchase or
sell these securities. There is no assurance the portfolio will continue to
hold these securities. Opinions expressed herein are subject to change
without notice.
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 BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT -- FOREIGN (0.1%)
CANADA (0.1%)
$ 75,000 Canadian Imperial Bank of Commerce, 6.200% due
08/01/00 (cost $75,004)........................ Aa3/AA- $ 74,642
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (14.3%)
FINANCIAL SERVICES (14.3%)
200,000 Bear Stearns Structured Securities Inc.,
Sequential Payer, Series 1997-2, Class 1A5,
(144A), 7.000% due 08/25/36(s)................. Aaa/NR 185,469
200,000 Chase Funding Mortgage Loan, Series 1998-2,
Class IIA2, 5.875% due 03/25/17................ Aaa/AAA 197,500
2,000,000 Chase Manhattan Bank - First Union National,
Sequential Payer, Series 1999-1, Class A2,
7.439% due 07/15/09............................ NR/AAA 2,002,500
310,000 Citibank Credit Card Master Trust I, Subordinated
Bond, PO, Series 1997-6, Class A, 7.186%(y)
due 08/15/06................................... Aaa/AAA 223,684
1,000,000 Commercial Mortgage Acceptance Corp., Sequential
Payer, Series 1998-C2, Class A2, 6.030% due
03/15/08(s).................................... NR/AAA 910,581
160,076 CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C2, Class A1,
6.400% due 02/17/04(s)......................... Aaa/AAA 156,325
1,500,000 CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1999-C1, Class A2,
7.290% due 09/15/09............................ Aaa/NR 1,460,625
100,000 CS First Boston Mortgage Securities Corp.,
Subordinated Bond, Series 1997-C2, Class B,
6.720% due 11/17/07(s)......................... Aa2/NR 91,781
870,999 First Nationwide Trust, Sequential Payer,
Series 1999-4, Class 3PA1, 6.500% due
10/19/29....................................... NR/AAA 811,118
1,000,000 Heller Financial Commercial Mortgage Asset Co.,
Sequential Payer, Series 1999-PH1, Class A2,
6.847% due 05/15/31............................ Aaa/NR 957,500
155,000 LB Commercial Conduit Mortgage Trust, Sequential
Payer, Series 1999-C2, Class A2, 7.325% due
09/15/09....................................... Aaa/NR 152,723
400,000 MBNA Master Credit Card Trust, Series 1999-J,
Class A, 7.000% due 02/15/12................... Aaa/AAA 394,187
160,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-XL2, Class A2, 6.170% due
10/03/08....................................... NR/AAA 146,375
1,000,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1999-CAM1, Class A4, 7.020% due
11/15/09....................................... NR/AAA 967,344
200,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, CSTR, Series 1997-RR, Class D, (144A),
7.718% due 04/30/39(v)......................... NR/NR 140,850
255,000 Nomura Asset Securities Corp., Sequential Payer,
Series 1998-D6, Class A1B, 6.590% due
03/17/28....................................... Aaa/AAA 239,700
450,000 Sears Credit Account Master Trust,
Series 1995-5, Class A , 6.050% due 01/15/08... Aaa/AAA 436,500
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$9,708,632)................................ 9,474,762
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS (23.3%)
AEROSPACE (0.2%)
$ 100,000 Northrop-Grumman Corp., 9.375% due 10/15/24...... Baa3/BBB- $ 102,723
-----------
APPARELS & TEXTILES (0.1%)
15,000 Polymer Group, Inc., Series B, 9.000% due
07/01/07....................................... B2/B 14,662
20,000 Westpoint Stevens, Inc., 7.875% due 06/15/05..... Ba3/BB 18,200
-----------
32,862
-----------
AUTOMOTIVE (1.0%)
675,000 DaimlerChrysler, N.A. Holding, 7.200% due
09/01/09....................................... A1/A+ 663,012
-----------
AUTOMOTIVE SUPPLIES (0.2%)
95,000 Federal-Mogul Corp., 7.375% due 01/15/06......... Ba2/BB+ 86,720
55,000 Federal-Mogul Corp., 7.750% due 07/01/06......... Ba2/BB+ 50,926
-----------
137,646
-----------
BANKING (1.9%)
1,300,000 Northern Trust Co. Bank, 6.650% due 11/09/04..... Aa3/AA- 1,272,323
-----------
BROADCASTING & PUBLISHING (0.1%)
27,000 AMFM, Inc., 8.535%(y) due 02/01/09(v)............ B2/B 24,131
40,000 Clear Channel Communications, Inc., 7.250% due
10/15/27....................................... Baa3/BBB- 36,080
-----------
60,211
-----------
BUILDING MATERIALS (0.5%)
350,000 Armstrong World, Inc., 6.350% due 08/15/03....... Baa1/A- 335,639
-----------
CHEMICALS (0.2%)
150,000 Cytec Industries, Inc., MOPPRS, 6.846% due
05/11/25(v).................................... Baa2/BBB 138,949
-----------
COMMERCIAL SERVICES (1.1%)
700,000 Cendant Corp., 7.750% due 12/01/03............... Baa1/BBB 698,320
-----------
ELECTRIC (1.2%)
71,000 Calpine Corp., 7.625% due 04/15/06............... Ba1/BB+ 67,063
108,000 Calpine Corp., 7.875% due 04/01/08............... Ba1/BB+ 103,950
40,000 East Coast Power LLC, Tranche B, (144A), 7.066%
due 03/31/12................................... Baa3/BBB- 35,556
125,000 East Coast Power LLC, Tranche C, (144A), 7.536%
due 06/30/17................................... Baa3/BBB- 110,975
37,805 Niagara Mohawk Holdings, Inc., Series B, 7.000%
due 10/01/00................................... Baa3/BBB- 37,786
50,000 Scottish Power PLC, Series H, MTN, 6.750% due
07/15/04....................................... A2/A+ 48,316
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
ELECTRIC (CONTINUED)
$ 150,000 Southern Co. Capital Trust I, 8.190% due
02/01/37....................................... A3/BBB+ $ 141,658
250,000 Southern Co. Capital Trust II, 8.140% due
02/15/27....................................... A3/BBB+ 233,512
-----------
778,816
-----------
ELECTRONICS (0.1%)
50,000 Motorola, Inc., 7.500% due 05/15/25.............. A1/A+ 48,984
-----------
ENERGY SOURCE (0.0%)
7,000 Cogentrix Energy, Inc., 8.750% due 10/15/08...... Ba1/BB+ 6,790
-----------
ENTERTAINMENT, LEISURE & MEDIA (0.5%)
180,000 Fox Sports Networks LLC, 8.875% due 08/15/07..... Ba1/BBB- 183,150
150,000 Lamar Media Corp., 8.625% due 09/15/07........... B1/B 148,500
-----------
331,650
-----------
FINANCIAL SERVICES (7.9%)
1,000,000 Associates Corp. N.A., 5.800% due 04/20/04....... Aa3/AA- 947,490
45,000 Associates Corp. N.A., Putable, 5.960% due
05/15/37....................................... Aa3/AA- 44,952
100,000 Bank of America Corp., 7.250% due 10/15/25....... Aa3/A 92,933
500,000 CIT Group Inc., MTN, 5.920% due 11/08/02......... A1/A+ 483,245
50,000 FCB/NC Capital Trust I, 8.050% due 03/01/28...... Baa3/BB+ 44,521
700,000 Finova Capital Corp., 7.250% due 11/08/04........ Baa1/A- 690,137
675,000 Ford Motor Credit Co., 5.800% due 01/12/09....... A1/A+ 598,225
625,000 General Motors Acceptance Corp., 6.850% due
06/17/04....................................... A2/A 615,962
50,000 General Motors Acceptance Corp., MTN, 5.900% due
03/06/00....................................... A2/A 49,992
775,000 Household Finance Corp., 6.000% due 05/01/04..... A2/A 730,252
300,000 Household Finance Corp., Series E, MTN, 6.440%
due 06/17/05(v)................................ A2/A 298,887
100,000 Keystone Financial Mid-Atlantic Funding, MTN,
6.500% due 05/31/08............................ Baa2/BBB+ 87,096
100,000 Safeco Capital Trust I, 8.072% due 07/15/37...... A3/BBB 88,681
500,000 Toyota Motor Credit Corp., 5.625% due 11/13/03... Aa1/AAA 476,065
-----------
5,248,438
-----------
GAS-PIPELINES (0.1%)
100,000 Dynegy, Inc., 7.625% due 10/15/26................ Baa2/BBB+ 91,833
-----------
HEALTH SERVICES (0.1%)
15,000 Tenet Healthcare Corp., 8.625% due 01/15/07...... Ba3/BB- 14,513
40,000 Tenet Healthcare Corp., Series B, 7.625% due
06/01/08....................................... Ba1/BB+ 37,100
-----------
51,613
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
METALS & MINING (0.1%)
$ 50,000 P&L Coal Holdings Corp., Series B, 9.625% due
05/15/08....................................... B2/B $ 48,625
-----------
OIL-PRODUCTION (1.1%)
50,000 Atlantic Richfield Co., 8.250% due 02/01/22...... A2/A 53,486
675,000 Coastal Corp., 6.500% due 05/15/06............... Baa2/BBB 634,777
30,000 Pogo Producing Co., Series B, 10.375% due
02/15/09....................................... B2/BB- 31,200
-----------
719,463
-----------
OIL-SERVICES (1.3%)
775,000 Conoco, Inc., 5.900% due 04/15/04................ A3/A- 739,869
110,000 Enron Corp., 6.950% due 07/15/28................. Baa2/BBB+ 95,728
-----------
835,597
-----------
PERSONAL CARE (0.1%)
50,000 Procter & Gamble Co., 6.450% due 01/15/26........ Aa2/AA 44,180
-----------
RAILROADS (0.4%)
300,000 Union Pacific Corp., 5.780% due 10/15/01......... Baa3/BBB- 293,175
-----------
TELECOMMUNICATION SERVICES (0.2%)
145,000 Global Crossing Holdings, Inc. (144A), 9.125% due
11/15/06....................................... Ba2/BB 143,188
-----------
TELECOMMUNICATIONS (0.6%)
150,000 Adelphia Communications, Inc., 9.375% due
11/15/09....................................... B1/B+ 147,375
150,000 Charter Communications Holdings LLC, 8.250% due
04/01/07....................................... B2/B+ 139,500
115,000 McLeodUSA, Inc., 9.250% due 07/15/07............. B1/B+ 115,288
-----------
402,163
-----------
TELEPHONE (3.6%)
1,420,000 AT&T Corp., 6.000% due 03/15/09.................. A1/AA- 1,288,110
500,000 MCI Worldcom, Inc., 6.400% due 08/15/05.......... A3/A- 478,915
500,000 Sprint Capital Corp., 5.700% due 11/15/03........ Baa1/BBB+ 474,425
175,000 US West Capital Funding, Inc., 6.250% due
07/15/05....................................... Baa1/A- 165,617
-----------
2,407,067
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
TRANSPORTATION (0.2%)
$ 15,000 Atlantic Express Transportation Corp., 10.750%
due 02/01/04................................... B2/B $ 14,587
114,426 Federal Express Corp., Series 1999-1, Class C,
8.250% due 01/15/19............................ Baa1/BBB+ 113,986
-----------
128,573
-----------
UTILITIES (0.5%)
350,000 Texas Utilities Co., 5.940% due 10/15/01(v)...... Baa3/BBB 344,056
-----------
TOTAL CORPORATE OBLIGATIONS (COST
$15,803,864)............................... 15,365,896
-----------
FOREIGN CORPORATE OBLIGATIONS (1.9%)
CANADA (1.3%)
ELECTRIC
200,000 Ontario Electricity Financial Corp., 6.100% due
01/30/08....................................... Aa3/AA- 184,874
FINANCIAL SERVICES
200,000 McKesson Finance of Canada, (144A), 6.550% due
11/01/02....................................... Baa1/BBB+ 189,946
GAS-PIPELINES
50,000 Trans-Canada Pipelines, MTN, 7.060% due
10/14/25....................................... A2/A- 44,925
OIL PRODUCTION
49,920 Express Pipeline LP, Series B, (144A), 7.390% due
12/31/19....................................... Baa3/BBB- 42,744
TRANSPORT & SERVICES
250,000 Laidlaw, Inc., 6.500% due 05/01/05............... Baa3/BBB 220,695
WATER
175,000 Hydro-Quebec, 9.500% due 11/15/30................ A2/A+ 208,007
-----------
891,191
-----------
NETHERLANDS (0.2%)
TELECOMMUNICATION SERVICES
150,000 Kpnqwest B.V., 8.125% due 06/01/09............... Ba1/BB 144,000
-----------
UNITED KINGDOM (0.4%)
ELECTRIC
300,000 United Utilities PLC, 6.250% due 08/15/05........ A3/A 279,186
-----------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$1,409,343)................................ 1,314,377
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS (0.4%)
CANADA (0.4%)
$ 250,000 Province of Ontario, 7.625% due 06/22/04 (cost
$265,580)...................................... Aa3/AA- $ 255,470
-----------
SOVEREIGN BONDS (3.5%)
BRAZIL (1.6%)
303,303 Republic of Brazil C Bonds, Series 20 Year,
8.000% due 04/15/14............................ B2/B+ 227,665
248,708 Republic of Brazil C Bonds, Series L, 8.000% due
04/15/14....................................... B2/B+ 186,842
120,000 Republic of Brazil NMB L, Series 15 Year, 7.000%
due 04/15/09(v)................................ B2/B+ 97,650
35,000 Republic of Brazil NMB L, Series RG, 7.000% due
04/15/09(v).................................... B2/NR 28,481
587,500 Republic of Brazil, Series EI-L, 6.938% due
04/15/06(v).................................... B2/B+ 517,000
-----------
1,057,638
-----------
BULGARIA (0.1%)
115,000 Republic of Bulgaria IAB, PDI, 6.500% due
07/28/11(v).................................... B2/NR 90,706
-----------
COLOMBIA (0.3%)
50,000 Republic of Colombia, 9.750% due 04/23/09........ Ba2/BB+ 46,500
150,000 Republic of Columbia, 9.750% due 04/23/09........ Ba2/BB+ 139,500
-----------
186,000
-----------
MEXICO (0.8%)
75,000 United Mexican States, 11.375% due 09/15/16...... Ba2/BB 84,750
315,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba1/BB 356,454
50,000 United Mexican States Global Bonds, 11.500% due
05/15/26....................................... Ba1/BB 59,625
-----------
500,829
-----------
PANAMA (0.2%)
160,000 Republic of Panama, 8.875% due 09/30/27.......... Ba1/BB+ 134,400
-----------
PERU (0.1%)
100,000 Republic of Peru PDI, Series 20 Year, 4.500% due
03/07/17(v).................................... Ba3/BB 68,750
-----------
PHILIPPINES (0.2%)
115,000 Republic of Philippines Global Bonds, 9.875% due
01/15/19....................................... Ba1/BB+ 113,706
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
QATAR (0.2%)
$ 125,000 State of Qatar, (144A), 9.500% due 05/21/09...... Baa2/BBB $ 131,875
-----------
TOTAL SOVEREIGN BONDS (COST $2,135,960)...... 2,283,904
-----------
SUPRANATIONAL OBLIGATIONS (0.1%)
BANKING (0.1%)
100,000 Inter-American Development Bank, 6.750% due
07/15/27 (cost $97,787)........................ Aaa/AAA 92,268
-----------
<CAPTION>
U.S. GOVERNMENT AGENCY OBLIGATIONS (40.9%)
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP. (3.0%)
1,070,000 5.125% due 10/15/08(s)........................... 937,588
89,533 6.000% due 04/01/11.............................. 85,616
310,000 REMIC: PAC(11), Series 1694, Class PQ, 6.500% due
09/15/23(s).................................... 300,892
813,303 REMIC: Sequential Payer, Series 2080, Class Z,
6.500% due 08/15/28(s)......................... 653,432
-----------
1,977,528
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (34.9%)
450,000 6.000% due 05/15/08(s)........................... 421,313
170,000 6.160% due 08/07/28(s)........................... 148,883
56,464 8.500% due 05/01/09.............................. 58,104
300,000 REMIC: PAC-1(11), Series 1993-78, Class G, 6.500%
due 11/25/07(s)................................ 295,875
5,800,000 TBA, January, 6.000% due 01/01/30................ 5,305,202
2,130,000 TBA, January, 6.500% due 01/01/29................ 2,006,867
4,230,000 TBA, January, 6.500% due 01/01/30................ 3,990,175
5,460,000 TBA, January, 7.000% due 01/01/30................ 5,279,165
5,670,000 TBA, January, 7.500% due 01/01/30................ 5,606,212
-----------
23,111,796
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (3.0%)
1,259,142 6.500% due 11/15/29.............................. 1,184,777
290,161 7.000% due 08/15/12.............................. 287,167
448,152 7.000% due 03/15/29.............................. 432,744
70,003 7.500% due 02/15/27.............................. 69,215
-----------
1,973,903
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $27,650,029)......................... 27,063,227
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS (11.5%)
U.S. TREASURY BONDS (7.6%)
$ 1,850,000 6.125% due 08/15/29(s)........................... $ 1,763,568
703,000 6.750% due 08/15/26(s)........................... 706,297
2,110,000 8.875% due 02/15/19(s)........................... 2,568,271
-----------
5,038,136
-----------
U.S. TREASURY NOTES (3.9%)
2,455,000 5.625% due 09/30/01(s)........................... 2,430,450
135,000 6.000% due 08/15/09(s)........................... 130,781
-----------
2,561,231
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$7,741,028)................................ 7,599,367
-----------
<CAPTION>
SHARES
- ------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.1%)
INDUSTRIAL PRODUCTS & SERVICES (0.1%)
100 Home Ownership Funding, (144A), 13.331%(v) (cost
$100,104)...................................... Aaa/NR 79,446
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (37.1%)
COMMERCIAL PAPER-DOMESTIC (8.7%)
$ 1,950,000 Asset Securitization, 5.464% (y) due 01/19/00
(s)............................................ 1,944,082
1,200,000 BBL North America, 5.463% (y) due 01/18/00 (s)... 1,196,589
1,200,000 CXC Inc., (144A), 5.464% (y) due 01/19/00 (s).... 1,196,370
1,400,000 Trident Capital Corp., 5.464% (y) due 01/19/00
(s)............................................ 1,395,765
------------
5,732,806
------------
COMMERCIAL PAPER-FOREIGN (6.9%)
2,100,000 British Telecommunications PLC, 5.464% (y) due
01/19/00 (s)................................... 2,093,668
2,500,000 Cregem North America Inc., 5.774% (y) due
01/19/00 (s)................................... 2,492,475
------------
4,586,143
------------
OTHER INVESTMENT COMPANIES (0.1%)
62,573 SSGA Money Market Fund, 4.997% (y) due
01/03/00....................................... 62,573
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ------------- ------------------------------------------------- -------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (21.4%)
$ 14,232,000 Bills, 4.995% (y) due 01/20/00 (s)............... $ 14,193,165
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$24,574,687)................................ 24,574,687
------------
TOTAL INVESTMENTS (COST $89,562,018) (133.2%).... 88,178,046
LIABILITIES IN EXCESS OF OTHER ASSETS (-33.2%)... (21,959,962)
------------
NET ASSETS (100.0%).............................. $ 66,218,084
============
</TABLE>
- ------------------------------
Note: Based on the cost of securities of $89,642,781 federal income tax purposes
at December 31, 1999, the aggregate gross unrealized appreciation and
depreciation was $164,897 and $1,629,632, respectively, resulting in net
unrealized depreciation of $1,464,735.
(s) - Security is fully or partially segregated with custodian as collateral for
TBA and when issued securities or futures contracts or with broker as initial
margin for futures contracts. $36,213,619 of the market value has been
segregated.
(v) - Rate shown reflects current rate on variable or floating rate instruments
or instruments with step coupon rate.
(y) - Yield to maturity.
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
C - Capitalization.
CSTR - Collateral Strip Rate.
IAB - Interest in Arrears Bond.
MOPPRS - Mandatory Par Put Remarked Securities.
MTN - Medium Term Note.
NMB - New Money Bonds.
NR - Not rated.
PAC - Planned Amortization Class.
PDI - Past Due Interest.
PO - Principal Only.
REMIC - Real Estate Mortgage Investment Conduit.
TBA - Securities purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount and
maturity date will be determined upon settlement.
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $89,562,018) $88,178,046
Cash 2,994
Receivable for Investments Sold 9,404,564
Interest Receivable 594,608
Variation Margin Receivable 34,969
Receivable for Shares of Beneficial Interest Sold 28,793
Prepaid Trustees' Fees 7,872
Prepaid Expenses and Other Assets 4,654
-----------
Total Assets 98,256,500
-----------
LIABILITIES
Payable for Investments Purchased 31,960,607
Advisory Fee Payable 17,098
Administrative Services Fee Payable 11,545
Payable for Shares of Beneficial Interest
Redeemed 2,835
Administration Fee Payable 43
Accrued Expenses 46,288
-----------
Total Liabilities 32,038,416
-----------
NET ASSETS
Applicable to 5,895,938 Shares of Beneficial
Interest Outstanding
(no par value, unlimited shares authorized) $66,218,084
===========
Net Asset Value, Offering and Redemption Price
Per Share $11.23
===========
ANALYSIS OF NET ASSETS
Paid-in Capital $67,209,549
Undistributed Net Investment Income 1,237,804
Accumulated Net Realized Loss on Investments,
Futures and Foreign Currency Contracts and
Transactions (980,013)
Net Unrealized Depreciation of Investments,
Futures and Foreign Currency Contracts and
Transactions (1,249,256)
-----------
Net Assets $66,218,084
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
J.P. MORGAN BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign Withholding Tax
of $82) $ 2,698,300
EXPENSES
Advisory Fee $ 132,584
Custodian Fees and Expenses 64,118
Trustees' Fees and Expenses 42,973
Professional Fees and Expenses 31,096
Administrative Services Fee 16,876
Transfer Agent Expense 16,334
Printing Expenses 15,874
Amortization of Organization Expense 1,978
Administration Fee 373
Miscellaneous 9,253
-----------
Total Expenses 331,459
-----------
NET INVESTMENT INCOME 2,366,841
NET REALIZED GAIN (LOSS) ON
Investments (1,059,462)
Futures Contracts 92,749
Foreign Currency Contracts and Transactions 18,066
-----------
Net Realized Loss (948,647)
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (1,650,959)
Futures Contracts 121,699
Foreign Currency Contracts and Transactions (11,087)
-----------
Net Change in Unrealized Depreciation (1,540,347)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (122,153)
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
J.P. MORGAN BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 2,366,841 $ 1,189,503
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (948,647) 386,889
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (1,540,347) 92,828
---------------- ----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (122,153) 1,669,220
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,376,216) (978,066)
Net Realized Gain (137,587) (313,174)
---------------- ----------------
Total Distributions to Shareholders (1,513,803) (1,291,240)
---------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 46,779,712 24,436,288
Reinvestment of Dividends and Distributions 1,513,803 1,291,238
Cost of Shares of Beneficial Interest Redeemed (12,980,931) (9,463,175)
---------------- ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 35,312,584 16,264,351
---------------- ----------------
Total Increase in Net Assets 33,676,628 16,642,331
NET ASSETS
Beginning of Fiscal Year 32,541,456 15,899,125
---------------- ----------------
End of Fiscal Year (including undistributed net
investment income of $1,237,804 and $229,113,
respectively) $ 66,218,084 $ 32,541,456
================ ================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
J.P. MORGAN BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1995
FOR THE FISCAL YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
-------------------------------------------- OPERATIONS) THROUGH
1999 1998 1997 1996 DECEMBER 31, 1995
-------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.67 $ 11.29 $ 10.65 $10.91 $10.00
------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.40 0.45 0.68(c) 0.47 0.58
Net Realized and Unrealized Gain
(Loss) on Investments, Futures and
Foreign Currency Transactions (0.53) 0.45 0.31(c) (0.25) 1.11
------- ------- ------- ------ ------
Total from Investment Operations (0.13) 0.90 0.99 0.22 1.69
------- ------- ------- ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net Investment Income (0.27) (0.39) (0.27) (0.47) (0.58)
Net Realized Gain (0.04) (0.13) (0.08) (0.01) (0.20)
------- ------- ------- ------ ------
Total Distributions to Shareholders (0.31) (0.52) (0.35) (0.48) (0.78)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 11.23 $ 11.67 $ 11.29 $10.65 $10.91
======= ======= ======= ====== ======
RATIOS AND SUPPLEMENTAL DATA
Total Return (1.13)% 8.01% 9.38% 2.09% 16.85%(a)
Net Assets, End of Period (in
thousands) $66,218 $32,541 $15,899 $2,782 $1,417
Ratios to Average Net Assets
Net Expenses 0.75% 0.75% 0.75% 0.75% 0.75%(b)
Net Investment Income 5.36% 5.39% 6.20% 5.91% 6.00%(b)
Expenses without Reimbursement 0.75% 1.02% 1.91% 2.18% 2.90%(b)
Portfolio Turnover 479% 179% 184% 198% 239%
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
(c) Based on Average Daily Shares Outstanding.
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
J.P. MORGAN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Bond Portfolio (the "portfolio") is one of four portfolios
comprising 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 diversified,
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. Prior to December 30, 1999, the trust was
composed of five separate portfolios which operated as distinct investment
vehicles. J.P. Morgan Treasury Money Market Portfolio was terminated on
December 30, 1999. The investment objective of the portfolio is to seek to
provide a high total return consistent with moderate risk of capital and
maintenance of liquidity.
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 issuers of debt, asset-backed, and mortgage-backed
securities held by the portfolio to meet their obligations may be affected by
economic and political developments in a specific industry or region. The value
of asset-backed and mortgage securities can be significantly affected by changes
in interest rates or rapid principal payments including pre-payments.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States 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 established 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
21
<PAGE>
J.P. MORGAN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
is closed. If events materially affecting the value of foreign securities
occur between the time when the 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 expenses 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 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 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 foreign currency 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
22
<PAGE>
J.P. MORGAN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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 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 may enter into commitments to buy and sell investments to
settle on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
j) 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 net unrealized
appreciation, as applicable, as the income and/or capital gains are
earned.
k) The portfolio accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies. The effect of applying this
statement was to increase Undistributed Net Investment Income by $18,066
and increase Accumulated Net Realized Loss on Investments by $18,066. The
adjustments are primarily attributable to foreign currency reclasses. Net
investment income, net realized gains and net assets were not affected by
this change.
l) For federal income tax purposes, the fund had a capital loss carryforward
at December 31, 1999 of $764,534 which expires in the year 2007. To the
extent that this capital loss is used to offset future capital gains, it
is probable that gains so offset will not be distributed to shareholders.
23
<PAGE>
J.P. MORGAN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of 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") and a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"). Under the terms of the agreement, JPMIM is paid a fee for
its services, computed daily and paid monthly, at an annual rate of 0.30%
of the portfolio's average daily net assets. For the fiscal year ended
December 31, 1999, such fees amounted to $132,584.
b) The trust, on behalf of the portfolio, has retained Funds Distributor,
Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator
and distributor for the portfolio. Under a Co-Administration Agreement
between FDI and the trust on behalf of the portfolio, FDI provides
administrative services necessary for the operations of the portfolio,
furnishes office space and facilities required for conducting the business
of the portfolio and pays the compensation of the portfolios' 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
trust and certain other investment companies subject to similar agreements
with FDI. For the fiscal year ended December 31, 1999, the fee for these
services amounted to $373.
c) The trust, on behalf of 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 0.45% of the
average daily net assets of the portfolio, Morgan will reimburse the
portfolio for the excess expense 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 fiscal year ended December 31, 1999, the fee
for these services amounted to $16,876 and there will be no reimbursement
to the portfolio from Morgan under this agreement.
d) An aggregate annual fee of $20,000 is paid to each trustee for serving as
a trustee of the trust. The Trustees' Fees and Expenses shown in the
financial statements represent the portfolio's allocated portion of the
total fees and expenses.
24
<PAGE>
J.P. MORGAN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares. Transactions in shares of beneficial interest of the
portfolio were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Shares sold...................................... 4,113,778 2,080,565
Reinvestment of dividends and distributions...... 132,802 110,506
Shares redeemed.................................. (1,139,945) (810,528)
---------------- ----------------
Net Increase..................................... 3,106,635 1,380,543
================ ================
</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 fiscal year
ended December 31, 1999, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------------- ------------
<S> <C> <C>
U.S. Government Agency
Obligations............... $ 182,180,500 $162,752,693
Corporate, Collateralized
Mortgage and Other
Obligations............... 41,980,631 25,432,687
</TABLE>
Open futures contracts at December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
--------------- -------------- ------------
<S> <C> <C> <C>
U.S. Long Bond, expiring March 2000.............. 16 $ (55,596) $ 1,455,000
============== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS SHORT
---------------
<S> <C> <C> <C>
U.S. Five Year Note, expiring March 2000......... 27 $ 34,447 $ 2,646,422
U.S. Ten Year Note, expiring March 2000.......... 85 155,865 8,148,047
-------------- ------------- -----------
Totals........................................... 112 $ 190,312 $10,794,469
============== ============= ===========
</TABLE>
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of J.P. Morgan Bond Portfolio (one of
the series constituting J.P. Morgan Series Trust II, hereafter referred to as
the "portfolio") at December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at
December 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above. The financial highlights for
the year ended December 31, 1996 and for the period January 3, 1995
(commencement of operations) through December 31, 1995 were audited by other
independent accountants whose report dated February 14, 1997 expressed an
unqualified opinion on those statements.
PricewaterhouseCoopers LLP
New York, New York
February 16, 2000
26
<PAGE>
J.P. MORGAN SERIES TRUST II PORTFOLIOS
BOND PORTFOLIO
INTERNATIONAL OPPORTUNITIES PORTFOLIO
SMALL COMPANY PORTFOLIO
U.S. DISCIPLINED EQUITY PORTFOLIO
FOR MORE INFORMATION ON THE J.P. MORGAN SERIES TRUST II PORTFOLIOS, CALL FUNDS
DISTRIBUTOR, INC. AT (888) 756-8645.
1MAR376
J.P. MORGAN BOND PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1999
