<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN SMALL COMPANY PORTFOLIO
February 1, 2000
Dear Shareholder:
We are pleased to provide you with the December 31, 1999 annual report for the
J.P. Morgan Small Company Portfolio.
The J.P. Morgan Small Company Portfolio had a stellar 1999, returning 44.39%.
The portfolio outperformed the Russell 2000 Index and the Lipper Variable
Annuity Small Cap Funds Average, which returned 21.26% and 38.28%, respectively.
The portfolio's net asset value per share increased from $11.86 on December 31,
1998, to $16.73 on December 31, 1999. The portfolio made distributions during
the year of approximately $0.01 per share from ordinary income, approximately
$0.35 per share from short-term capital gains and approximately $0.01 per share
from long-term capital gains. In addition, the portfolio's net assets advanced
from approximately $6.8 million at the start of the year to approximately $16.4
million on December 31, 1999.
The report that follows includes detailed performance information about the J.P.
Morgan Small Company Portfolio, as well as an interview with Marian Pardo, the
portfolio manager primarily responsible for the portfolio. In this interview,
Marian discusses the events in the small-cap equity markets, portfolio
performance, and what she sees on the horizon.
As chairman and president of Asset Management Services, we thank you for your
participation in the J.P. Morgan Small Company 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.....6
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 $27,043 at December 31, 1999.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the portfolio's 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 ten years (or since inception). Total returns for periods of less
than one year are not annualized and provide a picture of how a fund has
performed over the short term.
GROWTH OF $10,000 SINCE INCEPTION
JANUARY 3, 1995 -- DECEMBER 31, 1999
[CHART]
<TABLE>
<CAPTION>
ST2 SMALL COMPANY Lipper VA
Portfolio - Frank Russell Small Co Funds
Job #1861 Initial Investment 10,000,000 2000 Initial Investment 10,000,000 Avg. Initial Investment 10,000,000
MONTHLY Returns Plot Points Monthly Returns Plot Points Monthly Returns Plot 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 0.10% 10,010 1/31/95 -1.26% 9,874 1/31/95 -1.31% 9,869
2/28/95 4.30% 10,440 2/28/95 4.16% 10,285 2/28/95 3.68% 10,232
3/31/95 2.97% 10,750 3/31/95 1.71% 10,461 3/31/95 2.42% 10,480
4/30/95 2.23% 10,990 4/30/95 2.22% 10,693 4/30/95 1.62% 10,650
5/31/95 1.46% 11,150 5/31/95 1.72% 10,877 5/31/95 1.31% 10,789
6/30/95 5.47% 11,760 6/30/95 5.19% 11,442 6/30/95 5.25% 11,356
7/31/95 5.36% 12,390 7/31/95 5.76% 12,101 7/31/95 6.63% 12,108
8/31/95 2.10% 12,650 8/31/95 2.07% 12,351 8/31/95 1.87% 12,335
9/30/95 1.58% 12,850 9/30/95 1.79% 12,572 9/30/95 2.01% 12,583
10/31/95 -3.42% 12,410 10/31/95 -4.47% 12,009 10/31/95 -3.22% 12,178
11/30/95 5.00% 13,030 11/30/95 4.20% 12,514 11/30/95 3.64% 12,621
12/31/95 1.98% 13,287 12/31/95 2.64% 12,844 12/31/95 1.48% 12,808
1/31/96 0.68% 13,377 1/31/96 -0.11% 12,830 1/31/96 -0.21% 12,781
2/29/96 4.20% 13,939 2/29/96 3.12% 13,230 2/29/96 5.46% 13,479
3/31/96 1.58% 14,159 3/31/96 2.04% 13,499 3/31/96 1.61% 13,696
4/30/96 5.35% 14,917 4/30/96 5.35% 14,221 4/30/96 7.15% 14,675
5/31/96 3.75% 15,476 5/31/96 3.94% 14,782 5/31/96 4.14% 15,282
6/30/96 -4.52% 14,777 6/30/96 -4.11% 14,175 6/30/96 -3.63% 14,728
7/31/96 -7.10% 13,728 7/31/96 -8.73% 12,937 7/31/96 -7.89% 13,566
8/31/96 4.41% 14,334 8/31/96 5.81% 13,688 8/31/96 6.08% 14,390
9/30/96 4.07% 14,917 9/30/96 3.91% 14,223 9/30/96 5.20% 15,139
10/31/96 0.63% 15,010 10/31/96 -1.54% 14,003 10/31/96 -2.11% 14,819
11/30/96 3.03% 15,465 11/30/96 4.12% 14,580 11/30/96 2.83% 15,239
12/31/96 4.65% 16,183 12/31/96 2.62% 14,963 12/31/96 1.49% 15,466
1/31/97 1.52% 16,428 1/31/97 2.00% 15,262 1/31/97 2.24% 15,812
2/28/97 -2.83% 15,963 2/28/97 -2.42% 14,891 2/28/97 -3.81% 15,210
3/31/97 -5.48% 15,089 3/31/97 -4.72% 14,189 3/31/97 -4.82% 14,477
4/30/97 -1.99% 14,789 4/30/97 0.28% 14,228 4/30/97 -0.40% 14,419
5/31/97 11.81% 16,535 5/31/97 11.12% 15,811 5/31/97 11.03% 16,009
6/30/97 5.20% 17,395 6/30/97 4.29% 16,489 6/30/97 4.73% 16,766
7/31/97 6.27% 18,486 7/31/97 4.65% 17,256 7/31/97 6.09% 17,787
8/31/97 2.36% 18,923 8/31/97 2.29% 17,651 8/31/97 1.47% 18,049
9/30/97 6.49% 20,151 9/30/97 7.32% 18,943 9/30/97 7.23% 19,354
10/31/97 -3.11% 19,523 10/31/97 -4.39% 18,111 10/31/97 -4.49% 18,485
11/30/97 -0.21% 19,482 11/30/97 -0.65% 17,993 11/30/97 -1.17% 18,268
12/31/97 1.75% 19,824 12/31/97 1.75% 18,308 12/31/97 0.98% 18,447
1/31/98 -2.67% 19,294 1/31/98 -1.58% 18,019 1/31/98 -1.52% 18,167
2/28/98 10.13% 21,248 2/28/98 7.39% 19,352 2/28/98 7.89% 19,600
3/31/98 5.35% 22,383 3/31/98 4.12% 20,150 3/31/98 4.83% 20,547
4/30/98 -0.85% 22,193 4/30/98 0.55% 20,261 4/30/98 0.61% 20,673
5/31/98 -5.34% 21,009 5/31/98 -5.39% 19,170 5/31/98 -5.34% 19,569
6/30/98 -1.02% 20,793 6/30/98 0.21% 19,210 6/30/98 0.99% 19,762
7/31/98 -8.80% 18,963 7/31/98 -8.09% 17,655 7/31/98 -6.95% 18,389
8/31/98 -19.79% 15,211 8/31/98 -19.42% 14,227 8/31/98 -19.83% 14,742
9/30/98 7.08% 16,287 9/30/98 7.83% 15,340 9/30/98 5.90% 15,612
10/31/98 2.64% 16,718 10/31/98 4.08% 15,966 10/31/98 4.51% 16,316
11/30/98 4.78% 17,518 11/30/98 5.24% 16,802 11/30/98 6.56% 17,387
12/31/98 6.92% 18,729 12/31/98 6.19% 17,842 12/31/98 7.66% 18,718
1/31/99 -0.08% 18,713 1/31/99 1.33% 18,079 1/31/99 0.85% 18,878
2/28/99 -7.85% 17,245 2/28/99 -8.10% 16,615 2/28/99 -7.85% 17,396
3/31/99 3.66% 17,876 3/31/99 1.56% 16,874 3/31/99 2.70% 17,865
4/30/99 5.04% 18,777 4/30/99 8.96% 18,386 4/30/99 6.39% 19,007
5/31/99 -1.43% 18,508 5/31/99 1.46% 18,655 5/31/99 1.63% 19,317
6/30/99 7.43% 19,883 6/30/99 4.52% 19,499 6/30/99 6.87% 20,644
7/31/99 -0.32% 19,820 7/31/99 -2.74% 18,964 7/31/99 -0.62% 20,516
8/31/99 -1.44% 19,535 8/31/99 -3.70% 18,262 8/31/99 -2.40% 20,023
9/30/99 2.99% 20,120 9/30/99 0.02% 18,266 9/30/99 0.81% 20,186
10/31/99 4.40% 21,005 10/31/99 0.41% 18,340 10/31/99 2.76% 20,743
11/30/99 12.64% 23,661 11/30/99 5.97% 19,435 11/30/99 8.66% 22,539
12/31/99 14.30% 27,043 12/31/99 11.32% 21,635 12/31/99 13.20% 25,514
22.01% 16.69%
</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 Small Company Portfolio 34.41% 36.01% 44.39% 18.67% 22.01%
Russell 2000 Index** 18.44% 10.96% 21.26% 13.08% 16.69%
Lipper Variable Annuity
Small Cap Funds Average 27.04% 25.45% 38.28% 17.89% 19.61%
</TABLE>
*1/3/95 -- COMMENCEMENT OF OPERATIONS.
**THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX WHICH MEASURES THE AVERAGE
PERFORMANCE OF 2000 U.S. SMALL-CAP STOCKS. THE INDEX DOES NOT INCLUDE FEES OR
OPERATING EXPENSES AND IS NOT AVAILABLE FOR DIRECT INVESTMENT.
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.
HISTORICALLY SMALL-COMPANY STOCKS HAVE BEEN MORE VOLATILE THAN LARGE-COMPANY
STOCKS. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND
DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with MARIAN U. PARDO, managing director and member of
the portfolio management team for the portfolio. Marian joined J.P. Morgan in
1968. She currently manages a number of small-cap portfolios. Previously, she
managed equity and convertible funds, as well as large-cap equity portfolios.
Marian received her B.A. from Barnard College. This interview took place on
January 25, 2000, and reflects Marian's views on that date.
WHAT WERE THE KEY TRENDS IN THE SMALL CAP MARKET OVER THE PAST TWELVE MONTHS?
MP: For the U.S. equity market, this twelve-month period was a highly volatile
one. Small caps started off the year on somewhat shaky footing. However, for the
balance of the year, they have done quite well, outperforming their larger-cap
brethren and offering attractive relative value. It's interesting to note that
while the large caps regularly were hitting new highs during the year, because
of the volatility in small caps, the Russell 2000 didn't hit a new high until
December, the last one being April 1998. Positive earnings announcements and
forecasts for future strong earnings propelled the U.S. market forward even as
market leadership narrowed even further as technology further strengthened its
market-driving position. On the flip side, any company that missed consensus
expectations, even by a penny or two, was severely punished by the market.
What we're seeing is the rise in importance of the "new" economy and the waning
of the old. These new and old classifications have translated roughly into
growth and value, with the growth sectors tech, telecom, biotech, and drugs
driving the market while old economy staples such as basic industry and
utilities fall to the sidelines.
The increasing disparity between growth and value that was a general market
trend was particularly striking in the small cap arena. For the year, the
Russell 2000 Growth returned 43.09% versus a NEGATIVE 1.49% for the Russell 2000
Value. Put another way, of the sectors in the Russell 2000 Index, only those
several new economy sectors had positive returns, and the index still posted
almost a 20% return for the year! This was further helped by the June 30
rebalancing of the Russell 2000. The weightings of new economy sectors
increased, the result being an index that is a much better representation of
emerging U.S. companies. The IPO market has continued to be red hot as well,
with anything Internet-related immediately soaring to dizzying heights (except
for a brief period during the summer).
At the same time, mergers and acquisitions have been reshaping the small-cap
landscape, as many of the deals this year have been large companies buying
small. This has attracted interest in these value targets, bolstering the
credibility of their worth. In retail, for example, Federated bought Fingerhut,
and in utilities, Scana Corporation acquired Public Service of North Carolina.
3
<PAGE>
HOW DID THE PORTFOLIO PERFORM IN THIS ENVIRONMENT?
MP: Although we had poor performance during the first few months of the year, we
ended the year up 44.39%, beating the benchmark by over 23%. The tech-driven,
growth-driven market has been to our advantage. While remaining broadly
diversified across all sectors, earlier in the year we were overweight tech and
telecom while underweighting REITs and utilities, all of which worked to our
advantage. We have been fully exposed to all opportunities. Our overweights and
underweights have been modest, yet these positions significantly added to
performance because of the disparity between growth and value.
WHICH HOLDINGS ADDED TO PERFORMANCE?
MP: Human Genome Sciences, MicroStrategy, SDL Inc., and Applied Micro Circuits
were among our top performers for the year. We've owned Human Genome Sciences
since its IPO several years ago and the company continues to be at the forefront
of genetically based pharmaceutical and diagnostic product development. Human
Genome is a very good example of how we invest: we look to identify an
opportunity early, be patient, and add to the position over time.
MicroStrategy was one of our top software stocks. The stocks of enterprise
software providers in general have skyrocketed this year and MicroStrategy has
been among the big winners. In October, the company announced that revenues were
up 102% over the same quarter last year and third-quarter net income rose 97%
from a year ago.
SDL Inc., a manufacturer of products that power the transmission of data, voice,
and Internet information over fiber-optic networks, was up following several
consecutive quarters of positive earnings. Its outlook continues to be bright.
Applied Micro Circuits continues to benefit from strong demand for
high-performance, high-bandwidth silicon solutions for the world's communication
infrastructure. For the year, it was up over 649%.
Outside tech, Mueller Industries (multi-industry) and Georgia Gulf (basic
industry) have had a positive impact on performance.
WHICH ONES DETRACTED FROM PERFORMANCE?
MP: There have, of course, been some disappointments. Earlier in the year, we
were impacted by not holding a few of the very large cap Internet stocks that
were in the Index until the June 30 rebalancing. This included CMGI and E*Trade.
Orbital Sciences, which designs and manufactures space and information systems,
was a disappointment in the early part of the year as well. We reviewed our
analysis and decided to sell the position.
The health services sector in general had a rough year. Our holding in Alterra
Healthcare detracted from performance as the company's earnings growth slowed in
the face of overbuilding of facilities. We have since sold the position. Health
service companies fought strong headwinds in 1999, which included political
attitudes, reimbursements, and Y2K concerns.
4
<PAGE>
Cinar Films, a Canadian film company, has been caught in the controversy over
government subsidization of the Canadian film industry. It has since recovered.
A handful of tech and finance companies that had disappointing earnings
underperformed. Included in this group is New Era of Networks (we sold this
holding) and Willis Lease Finance.
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
MP: We are in an extremely volatile market, with very narrow leadership, but we
feel we are properly positioned to take advantage of the opportunities still
available in many areas. We expect the volatility to continue across the equity
markets in 2000. We think, however, that the market will spread out somewhat,
although the emphasis will still be on the new economy. Given global growth and
continued U.S. growth, we think there are still opportunities in basic industry,
energy and some beaten down industrials. We are positioning ourselves to take
advantage of this and have reduced our tech holdings a bit.
5
<PAGE>
PORTFOLIO FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Small Company Portfolio seeks to provide a high total return from a
portfolio comprised of equity securities of small companies.The portfolio
invests at least 65% of the value of its total assets in the common stock of
small U.S. companies, primarily those with market capitalizations of less than
$1 billion. The portfolio is designed for investors who are willing to assume
the somewhat higher risk of investing in small companies in order to seek a
higher return over time than might be expected from a portfolio of stocks of
large companies.
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
1/3/95
- --------------------------------------------------------------------------------
NET ASSETS AS OF 12/31/99
$16,424,684
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES (IF APPLICABLE)
4/21/00, 12/20/00
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
4/21/00, 12/20/00
EXPENSE RATIO
The portfolio's current annualized expense ratio of 1.15% 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 DECEMBER 31, 1999
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
TECHNOLOGY 29.4%
CONSUMER GOODS & SERVICES 12.2%
HEALTHCARE 11.1%
FINANCE 10.2%
TELECOMMUNICATIONS 7.3%
INDUSTRIAL PRODUCTS & SERVICES 6.7%
BASIC INDUSTRIES 6.6%
ENERGY 4.6%
TRANSPORTATION 1.5%
UTILITIES 1.2%
SHORT-TERM & OTHER INVESTMENTS 9.2%
[CHART]
LARGEST HOLDINGS
(EXCLUDING SHORT-TERM INVESTMENTS) % OF TOTAL INVESTMENTS
- --------------------------------------------------------------------
HUMAN GENOME SCIENCES, INC. (HEALTHCARE) 2.3%
MICROSTRATEGY, INC. (TECHNOLOGY) 1.9%
APPLIED MICRO CIRCUITS CORP. (TECHNOLOGY) 1.7%
CHECKFREE HOLDINGS CORP. 1.5%
(INDUSTRIAL PRODUCTS & SERVICES)
GEORGIA GULF CORP. (BASIC INDUSTRIES) 1.3%
ADVANCED FIBRE COMMUNICATIONS 1.2%
(TELECOMMUNICATIONS)
COOPER CAMERON CORP. (ENERGY) 1.2%
GEON CO. (BASIC INDUSTRIES) 1.1%
WELLMAN, INC. (BASIC INDUSTRIES) 1.0%
KOPIN CORP. (TECHNOLOGY) 1.0%
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 SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
COMMON STOCKS (90.8%)
BASIC INDUSTRIES (6.6%)
CHEMICALS (4.5%)
Albemarle Corp................................... 3,900 $ 74,831
Bush Boake Allen, Inc.+.......................... 1,800 44,212
General Chemical Group, Inc...................... 3,600 8,325
Geon Co.......................................... 5,800 188,500
Georgia Gulf Corp................................ 6,800 206,975
Lyondell Chemical Co............................. 2,400 30,600
Minerals Technologies, Inc....................... 400 16,025
Wellman, Inc..................................... 9,000 167,625
-----------
737,093
-----------
FOREST PRODUCTS & PAPER (1.1%)
Caraustar Industries, Inc........................ 4,500 107,719
Universal Forest Products, Inc................... 4,700 69,619
-----------
177,338
-----------
METALS & MINING (1.0%)
Kennametal, Inc.................................. 1,300 43,712
Mueller Industries, Inc.+........................ 2,500 90,625
Schnitzer Steel Industries, Inc., Class A........ 1,800 35,100
-----------
169,437
-----------
TOTAL BASIC INDUSTRIES......................... 1,083,868
-----------
CONSUMER GOODS & SERVICES (12.2%)
APPARELS & TEXTILES (0.3%)
Columbia Sportwear Co.+.......................... 1,600 34,500
Vans, Inc.+...................................... 1,700 20,931
-----------
55,431
-----------
AUTOMOTIVE (0.1%)
Sonic Automotive, Inc.+.......................... 1,900 18,525
-----------
AUTOMOTIVE SUPPLIES (0.1%)
Dura Automotive Systems, Inc.+................... 800 13,900
-----------
BROADCASTING & PUBLISHING (2.5%)
Citadel Communications Corp.+.................... 1,200 77,850
Entercom Communications Corp.+................... 1,600 105,600
Spanish Broadcasting Systems, Inc.,
Class A+....................................... 2,400 96,150
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
BROADCASTING & PUBLISHING (CONTINUED)
TV Guide, Inc., Class A+......................... 2,600 $ 111,394
World Wrestling Federation Entertainment,
Inc.+.......................................... 1,300 22,384
-----------
413,378
-----------
ENTERTAINMENT, LEISURE & MEDIA (3.1%)
American Classic Voyages Co.+.................... 1,300 45,337
Anchor Gaming+................................... 2,500 108,359
Cinar Corp., Class B............................. 4,100 101,987
Insight Communications, Inc.+.................... 2,000 59,375
Media Metrix, Inc.+.............................. 1,200 43,050
NBC Internet, Inc., Class A+..................... 300 23,175
Premier Parks, Inc.+............................. 2,200 63,525
Quokka Sports, Inc.+............................. 1,300 16,737
Travel Services International, Inc.+............. 1,400 12,950
Webstakes. com, Inc.+............................ 1,400 27,781
-----------
502,276
-----------
FOOD, BEVERAGES & TOBACCO (1.1%)
American Italian Pasta Co., Class A+............. 1,900 58,425
Beringer Wine Estates Holdings, Inc., Class B+... 900 35,747
Keebler Foods Co.+............................... 3,200 90,000
-----------
184,172
-----------
HOUSEHOLD APPLIANCES & FURNISHINGS (0.7%)
Furniture Brands International, Inc.+............ 2,500 55,000
Stanley Furniture Co., Inc.+..................... 3,500 64,750
-----------
119,750
-----------
HOUSEHOLD PRODUCTS (0.4%)
Alberto-Culver Co., Class B...................... 2,500 64,531
-----------
MANUFACTURING (0.1%)
Jore Corp.+...................................... 300 2,372
Meade Instruments, Corp.+........................ 100 2,831
-----------
5,203
-----------
RESTAURANTS & HOTELS (0.9%)
Aztar Corp.+..................................... 2,900 31,537
Boca Resorts, Inc................................ 2,600 25,350
Extended Stay America, Inc.+..................... 3,100 23,637
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
RESTAURANTS & HOTELS (CONTINUED)
Papa John's International, Inc.+................. 1,200 $ 31,312
Sun International Hotels Ltd.+................... 1,600 31,000
-----------
142,836
-----------
RETAIL (2.9%)
Alloy Online, Inc.+.............................. 2,500 39,687
AnnTaylor Stores Corp.+.......................... 2,800 96,425
barnesandnoble.com, inc.+........................ 800 11,300
Cost Plus, Inc.+................................. 700 24,872
eToys, Inc.+..................................... 100 2,631
Flowers.com, Inc.+............................... 1,400 14,962
FreeMarkets, Inc.+............................... 100 34,141
Lithia Motors, Inc., Class A+.................... 1,800 32,175
Regis Corp....................................... 2,000 37,625
School Specialty, Inc.+.......................... 5,300 79,666
Stamps.com, Inc.+................................ 1,000 41,719
Webvan Group, Inc.+.............................. 300 4,884
Williams-Sonoma, Inc.+........................... 1,300 59,800
-----------
479,887
-----------
TOTAL CONSUMER GOODS & SERVICES................ 1,999,889
-----------
ENERGY (4.6%)
ELECTRIC (0.8%)
Cleco Corp....................................... 3,900 125,044
-----------
GAS EXPLORATION (1.1%)
Kinder Morgan, Inc............................... 3,200 64,600
Newfield Exploration Co.+........................ 3,600 96,300
Spinnaker Exploration Co.+....................... 1,300 18,281
-----------
179,181
-----------
OIL-PRODUCTION (0.4%)
Devon Energy Corp................................ 1,500 49,312
Unit Corp.+...................................... 1,200 9,225
-----------
58,537
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
OIL-SERVICES (2.3%)
Cooper Cameron Corp.+............................ 3,900 $ 190,856
Global Marine, Inc.+............................. 4,700 78,137
National-Oilwell, Inc.+.......................... 3,200 50,200
Smith International, Inc.+....................... 1,600 79,500
-----------
398,693
-----------
TOTAL ENERGY................................... 761,455
-----------
FINANCE (10.2%)
BANKING (3.4%)
BancorpSouth, Inc................................ 300 4,894
Bank United Corp., Class A....................... 3,800 102,481
Capital Crossing Bank+........................... 1,100 13,819
City National Corp............................... 1,300 42,819
Colonial BancGroup, Inc.......................... 6,700 69,512
Commercial Federal Corp.......................... 3,050 54,328
Community First Bankshares, Inc.................. 3,200 50,200
Gold Banc Corp., Inc............................. 500 4,531
Hamilton Bancorp, Inc.+.......................... 1,900 33,844
National Commerce Bancorporation................. 3,100 70,525
Pacific Century Financial Corp................... 1,900 35,506
Republic Security Financial Corp................. 3,500 24,992
Sterling Bancshares, Inc......................... 200 2,244
Summit Bancshares, Inc........................... 200 3,650
Sun Bancorp, Inc.+............................... 1,535 15,254
Westamerica Bancorporation....................... 1,100 30,766
-----------
559,365
-----------
FINANCIAL SERVICES (2.2%)
Allied Capital Corp.+............................ 3,700 67,641
American Home Mortgage Holdings, Inc.+........... 1,700 10,997
Creditrust Corp.+................................ 1,300 10,034
Gabelli Asset Management, Inc.,
Class A+....................................... 1,700 27,625
Heller Financial, Inc............................ 4,200 84,262
Ilife.com, Inc.+................................. 500 2,344
MicroFinancial, Inc.............................. 500 5,844
Ocwen Financial Corp.+........................... 3,100 19,375
Rare Medium Group, Inc.+......................... 1,200 40,725
TD Waterhouse Group, Inc.+....................... 2,200 36,162
Web Street, Inc.+................................ 1,500 18,562
Willis Lease Finance Corp.+...................... 5,300 34,781
-----------
358,352
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
INSURANCE (2.2%)
Annuity and Life Re (Holdings), Ltd.(i).......... 3,900 $ 101,644
E.W. Blanch Holdings, Inc........................ 300 18,375
Fremont General Corp............................. 9,500 70,062
MIIX Group, Inc.+................................ 400 5,850
Quotesmith.com, Inc.+............................ 1,100 12,547
RenaissanceRe Holdings Ltd.(i)................... 3,500 143,062
StanCorp Financial Group, Inc.................... 500 12,594
-----------
364,134
-----------
REAL ESTATE INVESTMENT TRUSTS (2.4%)
Arden Realty Group, Inc.......................... 2,600 52,162
CenterPoint Properties Corp...................... 1,200 43,050
Cousins Properties, Inc.......................... 1,800 61,087
Manufactured Home Communities, Inc............... 2,600 63,212
Mills Corp....................................... 1,200 21,450
Mission West Properties, Inc..................... 3,100 24,025
Post Properties, Inc............................. 2,569 98,264
The Macerich Co.................................. 1,700 35,381
-----------
398,631
-----------
TOTAL FINANCE.................................. 1,680,482
-----------
HEALTH CARE (11.1%)
BIOTECHNOLOGY (5.8%)
Affymetrix, Inc.+................................ 900 152,691
BioCryst Pharmaceuticals, Inc.+.................. 1,100 32,381
Human Genome Sciences, Inc.+..................... 2,500 381,406
IDEC Pharmaceuticals Corp.+...................... 1,400 137,419
Maxygen, Inc.+................................... 300 21,412
Millennium Pharmaceuticals, Inc.+................ 1,000 121,906
SangStat Medical Corp.+.......................... 3,000 89,156
Trimeris, Inc.+.................................. 1,400 33,162
-----------
969,533
-----------
HEALTH SERVICES (2.3%)
Allscripts, Inc.+................................ 2,300 100,194
CareInsite, Inc.+................................ 900 72,478
HealthExtras, Inc.+.............................. 2,400 28,875
IDX Systems Corp.+............................... 1,200 37,612
MedQuist, Inc.+.................................. 2,800 72,012
Oxford Health Plans, Inc.+....................... 3,900 49,603
Women First HealthCare, Inc.+.................... 2,000 11,000
-----------
371,774
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
MEDICAL SUPPLIES (1.4%)
CONMED Corp.+.................................... 1,200 $ 31,125
Cyberonics Inc.+................................. 2,400 38,250
Cytyc Corp.+..................................... 300 18,347
Eclipse Surgical Technologies+................... 1,700 12,591
I-STAT, Corp.+................................... 2,200 31,625
IDEXX Laboratories, Inc.+........................ 2,500 40,469
ResMed, Inc.+.................................... 1,300 54,275
-----------
226,682
-----------
PHARMACEUTICALS (1.6%)
ILEX Oncology, Inc.+............................. 600 14,587
Ligand Pharmaceuticals, Inc.,
Class B+....................................... 9,500 121,719
MedImmune, Inc.+................................. 240 39,795
Triangle Pharmaceuticals, Inc.+.................. 1,800 23,006
Vertex Pharmaceuticals, Inc.+.................... 1,600 55,400
-----------
254,507
-----------
TOTAL HEALTH CARE.............................. 1,822,496
-----------
INDUSTRIAL PRODUCTS & SERVICES (6.7%)
BUILDING MATERIALS (0.2%)
Elcor Corp....................................... 900 27,112
-----------
BUSINESS & PUBLIC SERVICES (0.5%)
Modis Professional Services, Inc.+............... 2,700 38,475
Obie Media, Corp.+............................... 1,300 15,194
RoweCom, Inc.+................................... 800 36,650
-----------
90,319
-----------
CAPITAL GOODS (0.7%)
IDEX Corp........................................ 1,500 45,562
Shaw Group, Inc.+................................ 2,600 65,812
-----------
111,374
-----------
COMMERCIAL SERVICES (1.0%)
Costar Group, Inc.+.............................. 1,000 35,812
Official Payments Corp.+......................... 200 10,481
On Assignment, Inc.+............................. 2,200 65,381
Pfsweb, Inc.+.................................... 200 7,488
Source Information Management Co.+............... 2,500 41,563
-----------
160,725
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
DIVERSIFIED MANUFACTURING (0.8%)
Buckeye Technologies, Inc.+...................... 2,600 $ 38,675
Gentek, Inc...................................... 4,700 49,056
Symyx Technologies, Inc.+........................ 1,700 50,788
-----------
138,519
-----------
INDUSTRIAL PRODUCTS & SERVICES (1.1%)
CNH Global NV+(i)................................ 3,600 47,925
Mettler-Toledo International, Inc.+.............. 3,500 133,656
-----------
181,581
-----------
MACHINERY (0.6%)
Manitowoc Co., Inc............................... 900 30,600
Terex Corp.+..................................... 2,500 69,375
-----------
99,975
-----------
MANUFACTURING (1.6%)
American National Can Group, Inc................. 1,700 22,100
AptarGroup, Inc.................................. 1,300 32,663
JAKKS Pacific, Inc.+............................. 500 9,344
MKS Instruments, Inc.+........................... 3,200 115,800
Monaco Coach Corp.+.............................. 1,400 35,788
National R.V. Holdings, Inc.+.................... 2,600 50,050
-----------
265,745
-----------
PACKAGING & CONTAINERS (0.2%)
Ivex Packaging Corp.+............................ 3,200 32,000
-----------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 1,107,350
-----------
TECHNOLOGY (29.4%)
AEROSPACE (0.6%)
L-3 Communications Holdings, Inc.+............... 2,500 104,063
-----------
COMMERCIAL SERVICES (1.5%)
Checkfree Holdings Corp.+........................ 2,400 252,600
-----------
COMPUTER SOFTWARE (14.1%)
3DO Co.+......................................... 3,500 31,883
Accrue Software, Inc.+........................... 1,200 64,575
AGENCY.COM, Inc.+................................ 400 20,550
Agile Software, Corp.+........................... 200 43,444
Akamai Technologies, Inc.+....................... 200 65,588
Alteon Websystems, Inc.+......................... 200 17,500
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
Art Technology Group, Inc.+...................... 1,100 $ 143,103
Business Objects SA - Spon. ADR (i)+............. 300 39,881
C-bridge Internet Solutions, Inc.+............... 100 4,906
Deltathree.com, Inc.+............................ 1,000 25,688
Digex, Inc. Del+................................. 500 34,250
Digital Impact, Inc.+............................ 300 15,084
E.piphany, Inc.+................................. 200 44,750
eGain Communications, Corp.+..................... 600 22,500
eSPEED, Inc., Class A+........................... 1,100 39,222
Excalibur Technologies Corp.+.................... 2,600 53,788
Exchange Applications, Inc.+..................... 900 49,894
Gartner Group, Inc., Class A..................... 2,400 36,600
Informatica Corp.+............................... 1,000 105,250
Informix Corp.+.................................. 5,200 59,638
Interleaf, Inc.+................................. 800 27,025
Liberate Technologies, Inc.+..................... 300 76,988
Liquid Audio, Inc.+.............................. 900 23,625
Looksmart, Ltd.+................................. 1,800 49,050
Mediaplex, Inc.+................................. 500 31,250
MicroStrategy, Inc.+............................. 1,500 315,047
National Information Consortium, Inc.+........... 1,100 35,475
NetRatings, Inc.+................................ 700 33,316
OnDisplay, Inc.+................................. 100 9,038
OpenTV Corp.+.................................... 300 24,113
Packeteer, Inc.+................................. 1,200 84,000
Peregrine Systems, Inc.+......................... 800 67,275
Preview Systems, Inc.+........................... 200 12,788
Rainmaker Systems, Inc.+......................... 800 16,250
Retek, Inc.+..................................... 800 60,400
Sanchez Computer Associates, Inc.+............... 2,600 107,900
Software.com, Inc.+.............................. 500 47,781
Tumbleweed Communications Corp.+................. 1,500 125,531
VA Linux Systems, Inc.+.......................... 300 62,081
Watchguard Technologies, Inc.+................... 1,500 45,141
Wind River Systems, Inc.+........................ 3,900 142,959
-----------
2,315,127
-----------
COMPUTER SYSTEMS (0.5%)
Redback Networks, Inc.+.......................... 100 17,716
Technology Solutions Co.+........................ 1,900 61,928
-----------
79,644
-----------
ELECTRONICS (0.5%)
Power-One, Inc.+................................. 1,700 78,944
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
INFORMATION PROCESSING (5.4%)
24/7 Media, Inc.+................................ 1,600 $ 89,800
Computer Horizons Corp........................... 4,100 66,241
Digital Island, Inc.+............................ 200 18,994
Equant NV-NY Registered Shares+(i)............... 700 78,400
Net Perceptions, Inc.+........................... 1,600 67,200
pcOrder.com, Inc.+............................... 800 40,750
Profit Recovery Group International, Inc.+....... 600 15,919
Proxicom, Inc.+.................................. 800 99,375
Ticketmaster Online-CitySearch, Inc., Class B+... 1,300 50,009
Verio, Inc.+..................................... 1,900 87,816
Viant Corp.+..................................... 400 39,125
Visual Networks, Inc............................. 900 71,213
Webtrends Corp.+................................. 600 48,450
WorldGate Communications, Inc.+.................. 2,200 104,569
-----------
877,861
-----------
SEMICONDUCTORS (6.8%)
Act Manufacturing, Inc.+......................... 1,800 67,781
Applied Micro Circuits Corp.+.................... 2,200 280,225
Applied Science and Technology, Inc.+............ 1,200 40,088
ATMI, Inc.+...................................... 2,800 92,313
C-Cube Microsystems, Inc.+....................... 800 50,050
Caliper Technologies Corp.+...................... 200 13,338
Exar Corp.+...................................... 1,900 111,981
Kopin Corp.+..................................... 3,800 161,500
Lam Research Corp.+.............................. 900 100,463
Sage, Inc.+...................................... 300 5,775
SDL, Inc.+....................................... 600 130,913
Silicon Image, Inc.+............................. 800 55,925
-----------
1,110,352
-----------
TOTAL TECHNOLOGY............................... 4,818,591
-----------
TELECOMMUNICATIONS (7.3%)
TELECOMMUNICATION SERVICES (5.4%)
Aether Systems, Inc.+............................ 300 21,544
Allegiance Telecom, Inc.+........................ 1,700 156,188
American Mobile Satellite Corp.+................. 4,500 94,922
CapRock Communications Corp.+.................... 1,300 42,169
Clarent Corp.+................................... 1,100 85,456
Dycom Industries, Inc.+.......................... 500 22,031
E Tek Dynamics, Inc.+............................ 900 120,938
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (CONTINUED)
iBasis, Inc.+.................................... 300 $ 8,663
ITC DeltaCom, Inc.+.............................. 1,600 44,150
Juniper Networks, Inc.+.......................... 200 67,931
Metasolv Software, Inc.+......................... 300 24,788
Net2phone, Inc.+................................. 800 36,700
PNV.net, Inc.+................................... 3,000 24,469
SeaChange International, Inc.+................... 1,950 68,859
Tritel, Inc.+.................................... 400 12,675
Williams Communication Group, Inc.+.............. 900 26,044
Wink Communications, Inc.+....................... 300 18,009
Z-Tel Technologies, Inc.+........................ 400 15,925
-----------
891,461
-----------
TELECOMMUNICATIONS-EQUIPMENT (1.9%)
Advanced Fibre Communications+................... 4,300 192,694
Cobalt Networks, Inc.+........................... 200 21,538
Finisar Corp.+................................... 500 44,750
TeleCorp PCS, Inc.+.............................. 400 15,275
World Access, Inc.+.............................. 1,600 31,150
-----------
305,407
-----------
TOTAL TELECOMMUNICATIONS....................... 1,196,868
-----------
TRANSPORTATION (1.5%)
RAILROADS (0.3%)
Wisconsin Central Transportation Corp.+.......... 3,600 48,375
-----------
TRANSPORT & SERVICES (0.7%)
C.H. Robinson Worldwide, Inc..................... 3,100 123,322
-----------
TRUCK & FREIGHT CARRIERS (0.5%)
Werner Enterprises, Inc.......................... 5,675 79,273
-----------
TOTAL TRANSPORTATION........................... 250,970
-----------
UTILITIES (1.2%)
NATURAL GAS (0.6%)
Atmos Energy Corp................................ 3,800 77,663
Public Service Company of North Carolina, Inc.... 700 22,619
-----------
100,282
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
WATER (0.6%)
E'Town Corp...................................... 1,500 $ 93,375
-----------
TOTAL UTILITIES................................ 193,657
-----------
TOTAL COMMON STOCKS (COST $11,027,073)......... 14,915,626
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (9.1%)
OTHER INVESTMENT COMPANIES (1.7%)
SSGA Money Market Fund 4.997% (y), due
01/03/00....................................... $273,511 273,511
-----------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (7.4%)
U.S. Treasury Bills, 5.06% (y), due 1/20/2000.... $600,000 $ 598,398
U.S. Treasury Bills, 5.17%-5.28% (y), due
1/13/2000...................................... 623,000 621,916
-----------
TOTAL U.S. TREASURY OBLIGATIONS................ 1,220,314
-----------
TOTAL SHORT-TERM INVESTMENTS (COST
$1,493,825)................................... 1,493,825
-----------
TOTAL INVESTMENTS (COST $12,520,898) (99.9%)................
16,409,451
OTHER ASSETS IN EXCESS OF LIABILITIES (0.1%)................
15,233
-----------
NET ASSETS (100.0%)......................................... $16,424,684
===========
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $12,569,212 for federal income tax
purposes at December 31, 1999, the aggregate gross unrealized appreciation and
depreciation was $4,537,115 and $696,876, respectively, resulting in net
unrealized appreciation of $3,840,239.
+ - Non-income producing security.
(i) - Foreign security
(y) - Yield to maturity.
Spon. ADR - Sponsored American Depositary Receipt.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $12,520,898 ) $16,409,451
Receivable for Investments Sold 48,236
Receivable for Expense Reimbursement 23,415
Dividends Receivable 8,802
Receivable for Shares of Beneficial Interest Sold 4,179
Prepaid Expenses and Other Assets 856
-----------
Total Assets 16,494,939
-----------
LIABILITIES
Custody Fee Payable 18,672
Advisory Fee Payable 7,352
Payable for Investments Purchased 5,700
Payable for Shares of Beneficial Interest
Redeemed 1,673
Accrued Trustees' Fees and Expenses 11
Administration Fee Payable 9
Accrued Expenses 36,838
-----------
Total Liabilities 70,255
-----------
NET ASSETS
Applicable to 981,565 Shares of Beneficial
Interest Outstanding
(no par value, unlimited shares authorized) $16,424,684
===========
Net Asset Value, Offering and Redemption Price
per Share $ 16.73
===========
Net Asset Value, Offering and Redemption Price
per Share $16.73
ANALYSIS OF NET ASSETS
Paid-in Capital $11,937,748
Undistributed Net Investment Income 929
Accumulated Net Realized Gain on Investments 597,454
Net Unrealized Appreciation of Investments 3,888,553
-----------
Net Assets $16,424,684
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Withholding Tax of $34 ) $ 73,110
Interest Income 38,480
----------
Investment Income 111,590
FUND EXPENSES
Custodian Fees and Expenses $ 105,141
Advisory Fee 55,018
Professional Fees and Expenses 26,800
Printing Expenses 17,648
Transfer Agent Expense 16,398
Trustees' Fees and Expenses 8,176
Amortization of Organization Expense 1,978
Administration Fee 77
Miscellaneous 4,009
---------
Total Expenses 235,245
Less: Reimbursement of Expenses (129,795)
---------
NET FUND EXPENSES 105,450
----------
NET INVESTMENT INCOME 6,140
NET REALIZED GAIN ON INVESTMENTS 1,165,003
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 3,351,113
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $4,522,256
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 6,140 $ 15,957
Net Realized Gain (Loss) on Investments 1,165,003 (85,540)
Net Change in Unrealized Appreciation
(Depreciation) of Investments 3,351,113 (288,812)
---------------- ----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 4,522,256 (358,395)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (6,555) (9,395)
Net Realized Gain (317,952) (74,714)
In Excess of Net Realized Gain -- (167,917)
---------------- ----------------
Total Distributions to Shareholders (324,507) (252,026)
---------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 7,391,609 3,344,904
Reinvestment of Dividends and Distributions 324,507 252,063
Cost of Shares of Beneficial Interest Redeemed (2,320,035) (1,351,537)
---------------- ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 5,396,081 2,245,430
---------------- ----------------
Total Increase in Net Assets 9,593,830 1,635,009
NET ASSETS
Beginning of Year 6,830,854 5,195,845
---------------- ----------------
End of Year (including undistributed net
investment income of $929 and $4,416,
respectively) $ 16,424,684 $ 6,830,854
================ ================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN SMALL COMPANY 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 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 $ 11.86 $ 13.09 $ 12.53 $ 11.83 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.00(c) 0.03 0.04 0.06 0.11
Net Realized and Unrealized Gain (Loss) on
Investments 5.23 (0.74) 2.53 2.43 3.18
------- ------- ------- ------- -------
Total from investment operations 5.23 (0.71) 2.57 2.49 3.29
------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.01) (0.02) (0.04) (0.06) (0.11)
Net Realized Gain (0.35) (0.15) (1.97) (1.73) (1.35)
In Excess of Net Realized Gain -- (0.35) -- -- --
------- ------- ------- ------- -------
Total distributions to Shareholders (0.36) (0.52) (2.01) (1.79) (1.46)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 16.73 $ 11.86 $ 13.09 $ 12.53 $ 11.83
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Total return 44.39% (5.51)% 22.50% 21.74% 32.91%(a)
Net Assets, End of Period (in thousands) $16,425 $ 6,831 $ 5,196 $ 3,867 $ 2,536
Ratios to Average Net Assets
Expenses 1.15% 1.15% 1.15% 1.15% 1.15%(b)
Net Investment Income 0.07% 0.28% 0.28% 0.54% 0.99%(b)
Expenses Without Reimbursement 2.57% 3.43% 3.81% 2.69% 3.22%(b)
Portfolio Turnover 121% 67% 85% 144% 100%
</TABLE>
- ------------------------
(a) Not Annualized.
(b) Annualized.
(c) Less than $0.01.
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Small Company 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 seeks to provide a
high total return from a portfolio of small company stock.
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.
b) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become 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.
c) Distributions to shareholders of net investment income and net realized
capital gains, if any, are declared and paid semi-annually.
d) The portfolio incurred organization expenses in the amount of $9,834.
These costs were deferred and are being amortized on a straight-line basis
over a five-year period from the commencement of operations.
18
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
e) 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.
f) 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.
g) 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 for the year ending December 31, 1999, for J.P. Morgan
Small Company Portfolio was to decrease undistributed net investment
income by $3,072, and increase accumulated net realized gain on investment
by $3,072. The adjustments are primarily due to the reclassification of
REIT income.
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 0.60% of the
portfolio's average daily net assets. For the fiscal year ended
December 31, 1999, such fees amounted to $55,018.
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 $77.
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 0.55% of the
average daily net assets of the portfolio, Morgan will
19
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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
Morgan has agreed to reimburse the portfolio $129,795.
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.
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 YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ ------------------
<S> <C> <C>
Shares sold...................................... 570,880 265,858
Reinvestment of dividends........................ 21,133 20,952
Shares redeemed.................................. (186,458) (107,855)
---------------- ----------------
Net Increase..................................... 405,555 178,955
================ ================
</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 year ended
December 31, 1999, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- --------- -----------
<S> <C>
$14,489,289...... $10,451,948
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Small Company 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 Small Company 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
21
<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.
IMAR385
J.P. MORGAN SMALL COMPANY PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1999
