JP MORGAN SERIES TRUST II, N-30D, 1998-09-03

JP MORGAN SERIES TRUST II
N-30D, 1998-09-03

Previous: AVALON BAY COMMUNITIES INC, S-3, 1998-09-03

Next: IVC INDUSTRIES INC, S-8, 1998-09-03

<PAGE>

LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN SERIES TRUST II

July 23, 1998

Dear Shareholder:

We are pleased to provide you with the June 30, 1998, semi-annual report for the
J.P. Morgan Series Trust II.

GLOBAL MARKET REVIEW

Volatility remained the prominent theme across global markets throughout the
period, as investors began to realize Asia's crisis ran deeper than initially
suspected. Emerging debt and equity markets suffered most, as investors sought
the safety and quality of the developed markets.

European equity markets ranked as the world's strongest performers for the
six-month period ending June 30, 1998 with the MSCI Europe Index closing the
period up 26.5%. The exception was the U.K. market, which was hurt by evidence
of rising inflation and an official increase in interest rates by the Bank of
England in June.

Despite a second wave of bad news from Asia and an apparent slowdown in
corporate profit growth, the S&P 500 Index posted a strong six-month return,
finishing the period up 17.7%. The U.S. market regained momentum during the end
of June as earnings announcements proved less disappointing than expected, and
merger activity remained robust.

Asian markets, both equity and debt, continued to underperform, as the region's
economies continued to deteriorate. Japanese stocks held up relatively well
(despite a deepening recession), with stock prices supported by hopes that the
government would aggressively take steps to resolve the banking crisis.
Elsewhere in the region, stock prices fell sharply, particularly in Hong Kong,
Singapore, and Malaysia, as the outlook for economic growth and corporate
profitability worsened.

Global fixed-income markets were again dominated by events in Asia. At the start
of the period there was some optimism that IMF support measures and the Japanese
reflationary package would help turn Asia's problems around. However, continued
economic weakness in Japan and Southeast Asia dashed this optimism. Credit
spreads widened in the U.S. and in some European markets. Overall, however,
global inflation

- -------------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS . . . . . . 1 J.P. MORGAN EQUITY PORTFOLIO . . . . 11

PORTFOLIO REVIEWS J.P. MORGAN SMALL COMPANY PORTFOLIO . 16

J.P. MORGAN TREASURY MONEY MARKET J.P. MORGAN INTERNATIONAL OPPORTUNITIES

PORTFOLIO . . . . . . . . . . . . . . 3 PORTFOLIO . . . . . . . . . . . . . . 21

J.P. MORGAN BOND PORTFOLIO . . . . . . 6 FINANCIAL STATEMENTS. . . . . . . . . 28

- -------------------------------------------------------------------------------------

</TABLE>

1
<PAGE>

remained low, and against this backdrop, the major fixed-income markets rallied
strongly throughout the period.

The report that follows includes detailed information on the J.P. Morgan Series
Trust II portfolios, as well as interviews with members of the portfolio
management teams. The interviews are designed to answer commonly asked questions
about the portfolios, elaborate on what happened during the reporting period,
and provide an outlook for the months ahead.

As chairman and president of Asset Management Services, we thank you for your
participation in the J.P. Morgan Series Trust II portfolios. 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 (800) 221-7930.

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

2
<PAGE>

J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO

PORTFOLIO REVIEW
We are pleased to report that J.P. Morgan Treasury Money Market Portfolio
provided a 2.23% return for the six months ended June 30, 1998. The portfolio's
net assets stood at 1.7 million at the end of the reporting period.

For most of the past six months, the fixed income markets were largely dominated
by events in Asia. Comparatively, the U.S. economy provided a backdrop of
strength and stability, evidenced by robust growth, strong consumer spending and
low inflation. Interest rates continued to move lower as the flight to quality
among investors continued, and the yield curve continued to flatten. Throughout
this year's political and economic turmoil, the Treasury Money Market Portfolio
maintained a conservative strategy.

The portfolio's net asset value per share decreased from $10.56 on December 31,
1997 to $9.30 on June 30, 1998. The portfolio's total net assets increased from
$1.6 million to $1.7 million at the end of the reporting period.

EXAMINING PERFORMANCE
One way to look at performance is to review a portfolio'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 portfolio'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
portfolio has performed over the short term.

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------------- -----------------------------------------
THREE SIX ONE THREE SINCE
AS OF JUNE 30, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- ----------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Treasury
Money Market Portfolio 1.17% 2.23% 4.63% 4.72% 4.77%
IBC U.S.Treasury and Repo
Money Fund Average** 1.19% 2.40% 4.85% 4.80% 4.87%
Lipper Variable Annuity
Money Market Average 1.26% 2.54% 5.21% 5.14% 5.21%>

</TABLE>

*1/3/95 - COMMENCEMENT OF OPERATIONS.

**IBC U.S. TREASURY AND REPO MONEY FUND AVERAGE REPRESENTS THE AVERAGE
PERFORMANCE OF SIMILARLY MANAGED FUNDS AND DOES NOT INCLUDE FEES OR OPERATING
EXPENSES AND IS NOT AVAILABLE FOR DIRECT INVESTMENT.

PAST PERFORMANCE IS NO A GUARANTEE OF FUTURE RESULTS. PORTFOLIO RETURNS ARE NET
OF PORTFOLIO EXPENSES ONLY, INCLUDE REINVESTMENT OF DIVIDENDS AND REFLECT THE
REIMBURSEMENT OF CERTAIN PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS FOR
THE PORTFOLIO. HAD EXPENSES NOT BEEN SUBSIDIZED, THE PORTFOLIO'S RETURN WOULD
HAVE BEEN LOWER. PORTFOLIO RETURNS DO NOT REFLECT ANY SEPARATE ACCOUNT EXPENSES
IMPOSED ON THE VARIABLE CONTRACTS WHICH MAY INCLUDE A SALES CHARGE, PREMIUM TAX
CHARGE, DAC TAX SALES CHARGE, COST OF INSURANCE, MORTALITY EXPENSES, SURRENDER
AND OTHER CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR
MUTUAL FUND DATA.

3
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTOGRAPH]

Following is an interview with ROBERT R. (SKIP) JOHNSON, a member of the
portfolio management team for the J.P. Morgan Treasury Money Market Portfolio.
Prior to joining Morgan in 1988, he founded and managed R.R. Johnson Associates,
merchant bankers. He also held senior positions with the Bank of Montreal and
U.S. Steel. This interview was conducted on July 9, 1998, and reflects Skip's
views on that date.

WOULD YOU GIVE US A BRIEF SUMMARY OF THE MARKETS IN RECENT MONTHS?

RRJ: The economy continued to show strong growth through the second quarter of
this year. The fact that this strong growth occurred with relatively no
inflation and strong consumer spending has given rise to speculation among
investors that the Federal Reserve might tighten to slow the economy. The
current perception is that the Fed currently holds a tightening bias, but also
appears to be on hold for now.

We also saw a continued flight to quality in the fixed income markets, primarily
a result of the Asian crisis that hit in the second half of last year and has
now included Japan. As a result, we also saw the intervention of the Fed, along
with the Bank of Japan, to support the Japanese yen - a rare event in world
economics. In general, the fixed income markets continue to rally.

THE PORTFOLIO NEARLY MATCHED THE PERFORMANCE OF THE IBC U.S. TREASURY AND REPO
AVERAGE, BUT MORE SIGNIFICANTLY UNDERPERFORMED THE LIPPER VARIABLE ANNUITY MONEY
MARKET AVERAGE. CAN YOU EXPLAIN?

RRJ: The portfolio is comprised of two separate Treasury securities: a July and
an October maturity. Many of the funds in the Lipper average have the benefit of
owning higher yielding repurchase agreements.

WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?

RRJ: We forecast the economy slowing down to around 2 percent later this year,
perhaps lower, which would be in line with the Fed's target. What would affect
that probability is if consumer spending stays very strong, and late cycle price
pressures accelerate. Although the Fed currently has a tightening bias, we don't
anticipate any actions by them anytime soon.

4
<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE
J.P. Morgan Treasury Money Market Portfolio seeks to provide current income,
maintain a high level of liquidity and preserve capital. The portfolio seeks to
achieve its investment objective by investing in direct obligations of the U.S.
Treasury and engaging in repurchase agreements with respect to those
obligations.

- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
1/3/95

- --------------------------------------------------------------------------------
NET ASSETS AS OF 6/30/98
$1,650,660

- --------------------------------------------------------------------------------
AVERAGE LIFE
12 days

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
12/11/98

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

EXPENSE RATIO
The portfolio's current annualized expense ratio of 0.60% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services, after reimbursement. The portfolio is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling, safekeeping portfolio shares, or for wiring redemption proceeds from
the portfolio.

PORTFOLIO HIGHLIGHTS
ALL DATA AS OF JUNE 30, 1998

PORTFOLIO ALLOCATION

(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

U.S. TREASURY OBLIGATIONS 99.1%

OTHER INVESTMENTS 0.9%

5
<PAGE>

J.P. MORGAN BOND PORTFOLIO

PORTFOLIO REVIEW
We are pleased to report that the J.P. Morgan Bond Portfolio posted a solid
return of 3.87% for the six months ended June 30, 1998.

The last 12 months have been good for bonds. With interest rates moving lower
throughout the period and inflation notably low, the bond market has been
experiencing a strong rally, particularly over the last six months. The flight
to quality prompted by the Asian crisis has contributed to this rally as
investors seek to avoid spread volatility. In addition, while some speculate
that the Federal Reserve may soon tighten to slow the economy's growth, they are
currently on hold, fueling expectations that the bond rally will continue. The
J.P. Morgan Bond Portfolio will maintain its long duration position and will not
reallocate back to credit-sensitive sectors until spreads stabilize.

The portfolio's net asset value per share increased from $11.29 on December 31,
1997 to $11.68 on June 30, 1998. During the year, the portfolio paid
approximately $0.02 per share from net investment income, and approximately
$0.02 per share from capital gains.The portfolio's total net assets increased
from $15.9 million to $19.6 million at the end of the reporting period.

EXAMINING PERFORMANCE

One way to look at performance is to review a portfolio'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 portfolio'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
the portfolio has performed over the short term.

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------------- ----------------------------
THREE SIX ONE SINCE
AS OF JUNE 30, 1998 MONTHS MONTHS YEAR INCEPTION*
- ----------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Bond Portfolio 2.24% 3.87% 10.54% 9.09%
Salomon Brothers BIG Bond Index** 2.32% 3.97% 10.59% 10.09%
Lipper Variable Annuity
Corporate Debt A-Rated Average 2.39% 3.97% 10.58% 9.83%

</TABLE>

*1/3/95 - COMMENCEMENT OF OPERATIONS.

**THE SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX: AN UNMANAGED,
MARKET-WEIGHTED INDEX THAT CONTAINS APPROXIMATELY 4,700 INDIVIDUALLY PRICED
INVESTMENT GRADE BONDS. THE INDEX DOES NOT INCUDE FEES OR EXPENSES AND IS NOT
AVAILABLE FOR ACTUAL INVESTMENT.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PORTFOLIO RETURNS ARE NET OF
PORTFOLIO EXPENSES ONLY, INCLUDE REINVESTMENT OF DIVIDENDS AND REFLECT THE
REIMBURSEMENT OF CERTAIN PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS FOR
THE PORTFOLIO. HAD EXPENSES NOT BEEN SUBSIDIZED, THE PORTFOLIO'S RETURN WOULD
HAVE BEEN LOWER. PORTFOLIO RETURNS DO NOT REFLECT ANY SEPARATE ACCOUNT EXPENSES
IMPOSED ON THE VARIABLE CONTRACTS WHICH MAY INCLUDE A SALES CHARGE, PREMIUM TAX
CHARGE, DAC TAX SALES CHARGE, COST OF INSURANCE, MORTALITY EXPENSES, SURRENDER
AND OTHER CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR
MUTUAL FUND DATA.

6
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTOGRAPH]

Following is an interview with WILLIAM G. TENNILLE, a member of the portfolio
management team for the J.P. Morgan Bond 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 July 9, 1998, and
reflects Bill's views on that date.

WOULD YOU SUMMARIZE THE FIXED INCOME MARKETS OVER THE LAST SEVERAL MONTHS?

WGT: In recent months, the U.S. fixed income markets continued to be impacted
by economic instability in Asia and Russia, against a backdrop of the relative
strength and stability of the U.S. economy. While the U.S. economy remains
strong, the most recent data releases are starting to indicate that the pace of
growth is moderating. Inventories are increasing, exports are slowing and new
orders for durable goods declined. Federal Reserve policy has remained on hold.

Interest rates continued to move lower in recent months due primarily to the
flight to quality buying. The yield curve continued to flatten.

HOW HAVE YOU POSITIONED THE PORTFOLIO OVER THE LAST SEVERAL MONTHS, BASED ON
MARKET EVENTS?

WGT: We maintained a long duration position most recently. Across sectors, we
continue to reduce our total below-investment grade exposures, as we also
reduced positions in investment grade corporates and emerging markets debt. On
the plus side, we added to positions in high grade asset backed securities,
short-term French and German sovereigns, and agency mortgages. We will continue
to maintain a defensive posture in the portfolio until we are confident that
ongoing credible fiscal reforms have been in place, and results are giving
evidence of significant progress toward a more settled market environment.

PLEASE DISCUSS YOUR STRATEGY FOR THE PORTFOLIO OVER THE NEXT FEW MONTHS.

WGT: Given the depth and persistence of the Asian crisis, we expect to have a
bias toward maintaining a long duration position to benefit from international
capital flows into the U.S. market. We will also likely continue to
opportunistically lower our profile in the below-investment grade extended
market sectors. We will also maintain our allocation to hedged international.
When credit spreads stabilize, we expect to reallocate back to the
credit-sensitive sectors.

7
<PAGE>

WOULD YOU OFFER INVESTORS YOUR OUTLOOK FOR THE REST OF 1998?

WGT: We expect to see continued spread volatility in coming months given the
increasingly unsettled global financial and political situation. Interest rate
levels will likely remain in a trading range of 5.50-6.12%, though they could
dip below these levels if there is unexpected bad news from outside the U.S. We
expect the Fed to remain on hold until either relative calm returns to the
global financial and currency markets or there are significant signs of
increased inflation in the U.S.

8
<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 OPERATIONS
1/3/95

- --------------------------------------------------------------------------------
NET ASSETS AS OF 6/30/98
$19,615,526

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
12/11/98

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

30-DAY SEC YIELD
5.48%

DURATION
6.33 years

EXPENSE RATIO
The portfolio's current annualized expense ratio of 0.75% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services, after reimbursement. The portfolio is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling, safekeeping portfolio shares, or for wiring redemption proceeds from
the portfolio.

PORTFOLIO HIGHLIGHTS
ALL DATA AS OF JUNE 30, 1998

PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS 30.6%

CORPORATE OBLIGATIONS 17.7%

U.S. TREASURY OBLIGATIONS 14.5%

COLLATERALIZED MORTGAGE OBLIGATIONS
AND ASSET BACKED SECURITIES 13.8%

FOREIGN GOVERNMENT OBLIGATIONS 12.0%

SHORT-TERM INVESTMENTS 10.7%

FOREIGN CORPORATE OBLIGATIONS 4.5%

SOVEREIGN BONDS 1.0%

CONVERTIBLE PREFERRED STOCKS 0.5%

</TABLE>

<TABLE>
<CAPTION>
<S> <C>
QUALITY BREAKDOWN

AAA* 63%

AA 6%

A 11%

Other 20%

</TABLE>

*INCLUDES U.S. GOVERNMENT AGENCY OBLIGATIONS, U.S. TREASURY OBLIGATIONS AND
SHORT-TERM INVESTMENTS.

9
<PAGE>

LARGEST HOLDINGS

% OF TOTAL % OF TOTAL
(EXCLUDING SHORT-TERM INVESTMENTS) INVESTMENTS (EXCLUDING SHORT-TERM INVESTMENTS) INVESTMENTS
- --------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C>
FHLMC, 7.00%, DUE 2/01/28 6.65% GNMA, 7.00%, DUE 2/15/28 2.80%
GERMANY UNITY FUND, 8.50%, DUE 2/20/01 4.75% US TREASURY BOND, 6.50%, DUE 11/15/26 2.62%
GOVERNMENT OF FRANCE, 4.75%, DUE 3/12/02 4.72% US TREASURY NOTE, 5.875%, DUE 2/15/00 2.55%
GNMA, 7.50%, DUE 5/15/28 4.20% US TREASURY NOTE, 6.625%, DUE 6/30/01 2.50%
US TREASURY BOND, 6.75%, DUE 8/15/26 4.04% GNMA, 7.00%, DUE 8/15/12 1.78%

</TABLE>

10
<PAGE>

J.P. MORGAN EQUITY PORTFOLIO

PORTFOLIO REVIEW
The J.P. Morgan Equity Portfolio returned 14.75% for the six months ended June
30, 1998. The portfolio surpassed the Lipper Variable Annuity Growth & Income
Average, which returned 12.26% for the period. The S&P 500 Index returned 17.71%
for the six months.

The portfolio's net asset value per share increased from $14.33 on December 31,
1997, to $16.27 on June 30, 1998. The portfolio made distributions during the
year of approximately $0.10 per share from short-term capital gains, and
approximately $0.07 per share from long-term capital gains. In addition, the
portfolio's net assets advanced from approximately $8.9 million on December 31,
1997, to approximately $13.0 million on June 30, 1998.

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------------- -------------------------------------------
THREE SIX ONE THREE SINCE
AS OF JUNE 30, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- ------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Equity Portfolio 2.32% 14.75% 24.77% 25.74% 28.05%
S&P 500 Index** 3.30% 17.71% 30.16% 30.24% 32.20%
Lipper Variable Annuity
Growth & Income Average 0.25% 12.26% 23.02% 24.98% 26.61%

</TABLE>

*1/3/95 - COMMENCEMENT OF OPERATIONS.

**THE S&P 500 INDEX IS AN UNMANAGED INDEX WHICH MEASURES THE AVERAGE PERFORMANCE
OF 500 WIDELY HELD U.S. LARGE-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. LIPPER
ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.

11
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTOGRAPH]

The following is an interview with HENRY D. CAVANNA, a member of the portfolio
management team for the J.P. Morgan Equity Portfolio. Henry joined Morgan in
1971. He is a senior U.S. equity portfolio manager in the U.S. Equity and
Balanced Accounts Group. Prior to joining Morgan, Henry was with Harris Upham &
Co. He received his BA from Boston College and his LLB from the University of
Pennsylvania. This interview took place on July 2, 1998, and reflects Henry's
views on that date.

HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT DURING THE SIX MONTHS ENDED
JUNE 30, 1998?

HDC: Although the S&P 500 Index gained 17.71%, it was a rocky period from a
macroeconomic standpoint. The crisis in Asia, which reared its head in late
1997, continues to unfold as we speak. The U.S. economy picked up steam, with
earnings growth for large-cap stocks better than expected. Interest rates
remained low, as did inflation. However, profit growth is slowing. This means
that companies have less pricing power, or less ability to pass their costs on
to their customers. While we believe this is a normal cyclical slowdown from a
robust level, it bears watching.

The stock market continues to do well, but is more narrow than it's been at any
time since the early 1970s. The largest of the large-cap stocks have been
outpacing all others for four years now. This trend has been sustained by Asia's
troubles, which have caused investors to seek security in large caps. We've seen
an incredible flight to quality so far this year, as investors fear the impact
of Asia on U.S. company earnings, prices, and demand. The spread in returns
between large- and small-cap stocks continues to widen. In fact, for the first
six months of 1998, the Russell 2000 Index lagged the S&P 500 by 12.78
percentage points.

HOW DID THE PORTFOLIO PERFORM RELATIVE TO THE MARKET?

HDC: For the six months ended June 30, 1998, the portfolio returned 14.75%,
outpacing our peers as measured by the Lipper Variable Annuity Growth & Income
Average, which returned 12.26% for the period. However, we lagged the Index,
which returned 17.71%.

Our stock picking style, which is crucial to our success, has been out of favor
lately. We construct a portfolio of large-cap stocks that is well-diversified
and well-balanced by sector, or industry group. We seek to insulate the
portfolio from major macroeconomic or market timing bets. Rather, we employ a
stock-picking process that is driven by our own in-house research and analysis.
The insights of our 26 equity analysts contribute significantly to the decisions
of our portfolio management team.

12
<PAGE>

In picking stocks for the portfolio, we focus on companies that look undervalued
on a long-term basis, and we sell companies that look fully valued. These days,
many of the largest companies appear fully valued to us. Yet those are the
companies that have been outperforming all others. There are still plenty of
large-cap stocks that we believe represent good value and that we hold, however.
These include Procter & Gamble, IBM, Exxon, Bristol-Myers, and Warner-Lambert.
We want to own large-cap stocks, but we want to own them at a fair price.

GIVEN THE STRONG PERFORMANCE OF THE S&P 500 INDEX, MANY INVESTORS ARE EXPRESSING
INTEREST IN INDEX FUNDS. HOW WOULD YOU COUNSEL THEM?

HDC: Active money managers - those who pick stocks rather than mimicking an
index - normally underperform the indexes in a narrow market. That is, when the
market's performance comes largely from a small group of stocks, active managers
are at a disadvantage. Investors have to ask themselves if they expect the era
of the index to continue indefinitely. Markets are cyclical. Periods of
outperformance by an asset class are very often followed by periods of
underperformance - and vice versa.

If a baseball player who normally hits .300 experiences a period when he's
hitting only .250, few managers would take him out of the lineup. They know the
odds are that someone who hits .300 on average will hit .300 again. Today's
market environment is challenging for active managers, but these periods don't
go on forever. It's also important to note that, on an absolute basis, most
active managers are performing well above the historical norms for large-cap
stocks. Few if any investors are losing money these days.

The outperformance of the S&P 500 is really due to the 50 largest stocks in that
index. Ten percent of the stocks in the Index account for 50% of the index's
market capitalization, or size. They are the stocks with the highest returns,
and the market is paying a premium for them. That's why our research views these
stocks as fully valued. We also believe that, because the "Nifty Fifty"
companies are more global in nature, foreign earnings are more important to
them. Therefore, they are more exposed to the troubles in Asia, as well as to a
strengthening U.S. dollar. The additional vulnerability that could affect these
large stocks suggests to us that now is not the time to pay a premium for them.

While we aren't abandoning the Nifty Fifty, we aren't embracing them, either. We
think it makes sense to own a diversified portfolio that includes these stocks -
and others as well.

WHICH STOCKS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?

HDC: EMC Corp., a technology company, benefited from its position as the
leading vendor of mainframe storage systems and moved to achieve the same
position in the open systems market. The company enjoyed rapidly rising demand
for data storage due to increased use of the Internet and computers. We believe
that EMC represents good value. The company appears well-positioned to
capitalize on the growth of demand for storage.

13
<PAGE>

WorldCom, Inc. is a well-positioned global telecommunications company. It is a
fully integrated firm, offering local, long-distance, and Internet access
services. WorldCom has been moving ahead with plans to acquire MCI
Communications Corp., a move which will transform the combined company into the
second-largest U.S. long-distance carrier.

Warner-Lambert benefited from the recent introductions of two exciting new
drugs: Lipitor, a cholesterol-reducing drug, and Rezulin, a diabetes drug. The
launch of Lipitor was the largest and most successful new drug launch in U.S.
history. (That is, until Viagra.) Warner-Lambert's earnings grew rapidly, and
the stock did very well during the period.

WHICH STOCKS HINDERED THE PORTFOLIO'S PERFORMANCE?

HDC: Starwood Hotels & Resorts, a real estate investment trust, suffered along
with most REITs during the period. However, our research indicates that Starwood
represents good value. The company recently acquired ITT Sheraton, and is trying
to create synergies and improve management at several hotel properties. During
the period, the stock suffered due to some controversial tax issues that remain
to be resolved. The government debated whether to remove some tax advantages
that have benefited Starwood. We believe these issues will be resolved, and we
continue to hold the stock due to our positive outlook for Starwood's underlying
businesses.

Tosco Corp., the U.S.'s largest independent refiner and marketer of petroleum
products, suffered during the period from weaker oil prices caused by an
unusually warm winter and by the lower commodity prices that have resulted from
the Asian crisis. The company's position on the more volatile end of the energy
industry, which is usually more sensitive to industry uncertainty, contributed
to its losses. However, we have confidence in Tosco's management team, and we
believe that the refining and marketing business is in the early stages of a
long-term cyclical recovery in profitability.

WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?

HDC: We do not believe that the current pace of the U.S. economy is sustainable.
We are looking for the economy to slow as the impact of Asia continues to be
felt. Computer companies and banks with loans in Asia, in particular, should be
affected. We expect corporate profit growth in the low single digits due in part
to a lack of corporate pricing power. In this environment, we believe active
stock selection will have more of an impact on returns.

In spite of these challenging macroeconomic conditions, we still see low
inflation and do not expect a recession. The U.S. continues to manage its
business well, and it appears to be a good time to be invested in North America.

14
<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE
J.P. Morgan Equity Portfolio seeks to provide a high total return from a
portfolio comprised of selected equity securities. The portfolio invests
primarily in the common stocks of U.S. corporations with market capitalizations
above $1.5 billion. The portfolio is designed for investors who want an actively
managed portfolio of selected equity securities that seeks to outperform the
S&P 500 Index.

- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
1/3/95

- --------------------------------------------------------------------------------
NET ASSETS AS OF 6/30/98
$12,989,215

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
12/11/98

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

EXPENSE RATIO
The portfolio's current annualized expense ratio of 0.90% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services, after reimbursement. The portfolio is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling, safekeeping portfolio shares, or for wiring redemption proceeds from
the portfolio.

PORTFOLIO HIGHLIGHTS

ALL DATA AS OF JUNE 30, 1998

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<S> <C>
CONSUMER GOODS & SERVICES 21.5%

FINANCE 16.2%

HEALTH CARE 13.4%

TECHNOLOGY 10.5%

ENERGY 9.4%

INDUSTRIAL PRODUCTS & SERVICES 9.3%

UTILITIES 7.3%

BASIC INDUSTRIES 6.1%

TRANSPORTATION 1.8%

SHORT-TERM AND OTHER INVESTMENTS 4.5%
</TABLE>

<TABLE>
<CAPTION>
LARGEST HOLDINGS
(EXCLUDING SHORT-TERM INVESTMENTS) % OF TOTAL INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
BRISTOL-MYERS SQUIBB CO. (HEALTH CARE) 2.8%
FIRST UNION CORP. (FINANCE) 2.6%
TOSCO CORP (ENERGY) 2.6%
INTERNATIONAL BUSINESS MACHINES CORP. 2.5%
(TECHNOLOGY)
AMERICAN HOME PRODUCTS CORP 2.4%
(HEALTH CARE)
STARWOOD HOTELS & RESORTS (FINANCE) 2.3%
PHILIP MORRIS COMPANIES, INC. 2.2%
(CONSUMER GOODS & SERVICES)
WARNER-LAMBERT CO. (HEALTH CARE) 2.1%
EMC CORP. (TECHNOLOGY) 2.1%
TYCO INTERNATIONAL LTD. 2.1%
(INDUSTRIAL PRODUCTS & SERVICES)
</TABLE>

15
<PAGE>

J.P. MORGAN SMALL COMPANY PORTFOLIO

PORTFOLIO REVIEW
We are pleased to report that the J.P. Morgan Small Company Portfolio kept pace
with its benchmark Russell 2000 Index for the six months ended June 30, 1998.
The portfolio returned 4.90% for the period, versus 4.93% for the benchmark. The
Lipper Variable Annuity Small Cap Funds Average earned 7.06% for the six months,
surpassing the portfolio and the Index.

The portfolio's net asset value per share increased from $13.09 at December 31,
1997, to $13.52 on June 30, 1998. The porfolio made distributions during the
year of approximately $0.08 per share from short-term capital gains, and
approximately $0.14 per share from long-term capital gains. In addition, the
portfolio's net assets advanced from approximately $5.2 million at the start of
the year to approximately $5.8 million on June 30, 1998.

EXAMINING PERFORMANCE
One way to look at performance is to review a portfolio'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 portfolio'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 portfolio has performed over the short term.

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- -------------------------------
THREE SIX ONE THREE SINCE
AS OF JUNE 30, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- --------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Small Company Portfolio -7.09% 4.90% 19.55% 20.93% 23.30%

Russell 2000 Index** -4.66% 4.93% 16.50% 18.85% 20.51%

Lipper Variable Annuity
Small Cap Funds Average -4.02% 7.06% 18.35% 19.89% 21.25%
</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.

16
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTO]

The following is an interview with STEPHEN J. RICH, a member of the portfolio
management team for the J.P. Morgan Small Company Portfolio. Steve joined Morgan
in 1991, and has held positions in Morgan's structured equity and
balanced/equity groups. He was educated at Princeton University, and is
currently pursuing a Masters degree in Business Administration at New York
University. This interview took place on July 15, 1998, and reflects Steve's
views on that date.

HOW DID THE SMALL-CAP MARKET BEHAVE DURING THE FIRST SIX MONTHS OF 1998?

SJR: The small-cap market experienced considerable volatility during the six
months ended June 30, 1998. Troubles resurfaced in Asia, and investors fled to
the perceived safety of large-cap stocks. By late June, however, as the Russell
2000 Index experienced its annual rebalancing, the market recovered a bit and
appeared to enter a positive phase. The small-cap Russell 2000 gained 4.93% for
the period, versus 17.71% for the S&P 500 Index of large-cap stocks.

The political and economic crises in Asia, which had first affected world
markets during the fourth quarter of 1997, once again led investors away from
small caps in 1998. In fact, May of 1998 saw the second-largest monthly decline
for small-cap stocks, as measured by the Russell 2000, in seven years.

Small-cap stocks were also held back by what the market perceived as earnings
disappointments. Earnings expectations for small caps have been higher than
expectations for large-cap stocks for some time. Small-cap earnings have been
stronger than large-cap earnings on an absolute basis, but the shortfall between
expected and actual earnings has been greater for small stocks than for large
stocks. Due to this shortfall, small-cap stocks have suffered relative to
large-cap stocks.

HOW DID THE PORTFOLIO PERFORM DURING THIS VOLATILE PERIOD?

SJR: We are pleased to announce that the portfolio kept pace with its benchmark
Russell 2000, returning 4.90% for the six months ended June 30, 1998, versus
4.93% for the benchmark. However, the portfolio lagged its peers, as measured by
the Lipper Variable Annunity Small Cap Funds Average, which returned 7.06% for
the period.

The portfolio maintains industry group, or sector, weightings close to those of
the Russell 2000. This allows us to focus on stock selection as the sole source
of our excess return. During the six months, our stock selection proved to be
successful.

17
<PAGE>

WHICH STOCKS ADDED TO THE PORTFOLIO'S RETURNS?

SJR: Our most successful holdings represent an eclectic group from an industry
standpoint. This reemphasizes the benefit of our sector-neutral approach -- we
can look for attractive companies anywhere.

DeKalb Genetics has been one of our largest positions for some time. It's also
been one of our most successful holdings -- up 141.3% for the six months ended
June 30, 1998. The company creates valuable agricultural genetics and
biotechnology for seed corn products, and holds several important patents. This
is a growing business, and we knew that DeKalb was well-positioned to benefit
from industry consolidation. In February, DeKalb, recognizing the economies of
scale needed to succeed, put itself up for sale. In mid-May, Monsanto agreed to
acquire DeKalb for $100 per share. We plan to tender our shares for cash at that
price.

Capital Re, a specialty insurance company, has also done well for us. The
company, a niche player, is run by what we consider a very solid management
team. The stock is up 15.7% for the six months -- unusually strong performance
in what is typically a slow-growth business. Our success with Capital Re
illustrates the benefit of our in-house research. We are often able to find
attractive companies, even within staid industries.

Orbital Sciences, a technology firm, launched a satellite at end of 1997. The
company was recently awarded an important government contract, and appears
poised to outperform its peers. We believe that the satellite business offers
significant room for growth in the future, and we see Orbital as an excellent
way to profit from that growth.

WHICH STOCKS HAMPERED THE PORTFOLIO'S RETURNS?

SJR: Although we kept pace with our benchmark, we still held some stocks that
disappointed us. American Pad & Paper, a market leader among pad and paper
suppliers, experienced slower earnings as it worked to build a more
comprehensive line of products and services without raising its prices. The
company took some one-time charges as it invested in itself, and the stock price
suffered as a result. Lately, however, earnings are picking up and appear to be
returning to more normalized levels. We view the changes American Pad & Paper is
implementing as beneficial and, at current levels, we continue to believe the
company represents value.

Premiere Technologies disappointed during the six months, with a stock price
decline of 65.3%. The company encountered difficulties with the integration of
an earlier acquisition, and growth temporarily slowed. In addition, two
customers delayed payments due to financial difficulties. Premiere is
capitalizing on the opportunities provided by deregulation in the
telecommunications industry. The company offers customers enhanced telephone and
data features that we believe will be attractive in the future.

18
<PAGE>

WHAT IS YOUR OUTLOOK FOR THE SMALL-CAP MARKET?

SJR: As markets become more volatile, we feel comfortable with the construction
of our portfolio. Our broad diversification -- 250 names -- should make the
portfolio a bit more resilient than our competition if market volatility
continues.

Our sector-neutral approach (keeping our industry group weightings similar to
those of our benchmark) means that we are neither a "growth" nor a "value"
manager. While most managers choose one camp or the other, we believe that our
style should be able to participate in periods when either approach is in favor.
This stands us in good stead during rocky markets, when value stocks do better
than growth stocks, or in calmer periods, when growth stocks prevail.

We continue to view small-cap stocks as attractive relative to large caps based
on valuations. Historically, the price/earnings ratio of small-cap stocks as
measured by the Russell 2000 is 25% higher than the price/earnings ratio of
large-cap stocks as measured by the S&P 500. Now, however, the P/E ratio of
small-cap stocks is lower than that of large-cap stocks -- an extremely unusual
occurrence. We view the severe undervaluation of small stocks as a buying
opportunity, and believe the portfolio is well-positioned to benefit from this
opportunity.

19
<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 OPERATIONS
1/3/95

- --------------------------------------------------------------------------------
NET ASSETS AS OF 6/30/98
$5,813,180

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
12/11/98

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

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 JUNE 30, 1998

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<S> <C>
FINANCE 23.1%

TECHNOLOGY 13.2%

CONSUMER GOODS & SERVICES 12.8%

INDUSTRIAL PRODUCTS & SERVICES 11.5%

HEALTH CARE 10.7%

BASIC INDUSTRIES 10.1%

UTILITIES 5.4%

ENERGY 3.5%

OTHER 4.0%

SHORT-TERM 5.7%
</TABLE>

D.R. HORTON, INC. 2.4%
(INDUSTRIAL PRODUCTS & SERVICES)

DEKALB GENETICS CORP., CLASS B 2.1%
(BASIC INDUSTRIES)

RENAISSANCERE HOLDINGS, LTD.(FINANCE) 2.0%

INTERMET CORP. 1.6%
(INDUSTRIAL PRODUCTS & SERVICES)

VENTANA MEDICAL SYSTEMS, INC. (HEALTH CARE) 1.6%

GARDEN RIDGE CORP.
(CONSUMER GOODS & SERVICES) 1.4%

MUELLER INDUSTRIES, INC. (BASIC INDUSTRIES) 1.4%

COMMERCIAL METALS CO. (BASIC INDUSTRIES) 1.4%

CENTRAL HUDSON GAS & ELECTRIC CORP. 1.2%
(UTILITIES)
</TABLE>

<PAGE>

J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO

PORTFOLIO REVIEW
The J.P. Morgan International Opportunities Portfolio provided a strong return
of 8.46% for the six months ended June 30, 1998. However, the portfolio
underperformed the 11.68% return of its benchmark, the MSCI All Country World
ex-U.S. Index, for the same period.

The portfolio's underperformance is largely attributable to country-allocation
decisions. Although the portfolio benefited from its underweight positions in
Japan, Hong Kong, and Malaysia, its overweight position in Singapore offset some
of the gains. Also, while stock picking in Japan, Hong Kong, and the U.K. added
to returns, stock selections in Singapore hampered the portfolio's performance.

The portfolio's overall exposure to emerging markets also detracted from the its
performance, as emerging markets suffered throughout the period from a pervasive
flight to the quality and safety of the developed markets.

The portfolio's net asset value per share increased from $10.60 on December 31,
1997, to $10.92 on June 30, 1998, the end of the period under review, after
making distributions of approximately $0.13 per share from net investment
income, approximately $0.33 per share from long-term capital gains, and $0.13
per share from short-term capital gains. In addition, the portfolio's net assets
advanced from $6.8 million on December 31, 1997, to $9.2 million on June 30,
1998.

<PAGE>

<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- -------------------------------
THREE SIX ONE THREE SINCE
AS OF JUNE 30, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- -------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan International
Opportunities Portfolio -2.65% 8.46% 3.60% 12.43% 11.30%

MSCI EAFE Index** 1.06% 15.93% 6.10% 10.69% 9.90%

MSCI All Country World ex-U.S. Index*** -1.77% 11.68% 0.63% 9.01% 8.14%

Lipper Variable Annuity
International Opportunities Average 1.35% 16.25% 9.42% 15.21% 14.69%
</TABLE>

*1/3/95 -- COMMENCEMENT OF OPERATIONS.

**MSCI EAFE INDEX IS AN UNMANAGED INDEX USED TO TRACK THE AVERAGE PERFORMANCE OF
OVER 900 SECURITIES LISTED ON THE STOCK EXCHANGES OF COUNTRIES IN EUROPE,
AUSTRALASIA, AND THE FAR EAST. THE INDEX DOES NOT INCLUDE FEES OR OPERATING
EXPENSES, AND IS NOT AVAILABLE FOR DIRECT INVESTMENT.

***MSCI ALL COUNTRY WORLD EX-U.S. INDEX IS AN UNMANAGED INDEX THAT MEASURES
DEVELOPED AND EMERGING FOREIGN STOCK MARKET PERFROMANCE. THE INDEX DOES NOT
INCLUDE FEES OR OPERATING EXPENSES, AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PORTFOLIO RETURNS ARE NET OF
PORTFOLIO EXPENSES ONLY, INCLUDE REINVESTMENT OF DIVIDENDS, AND REFLECT THE
REIMBURSEMENT OF CERTAIN PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS FOR
THE PORTFOLIO. HAD EXPENSES NOT BEEN SUBSIDIZED, THE PORTFOLIO'S RETURN WOULD
HAVE BEEN LOWER. PORTFOLIO RETURNS DO NOT REFLECT ANY SEPARATE ACCOUNT EXPENSES
IMPOSED ON THE VARIABLE CONTRACTS WHICH MAY INCLUDE A SALES CHARGE, PREMIUM TAX
CHARGE, DAC TAX SALES CHARGE, COST OF INSURANCE, MORTALITY EXPENSES, SURRENDER
AND OTHER CHARGES. FOREIGN INVESTING INVOLVES SPECIAL RISKS, INCLUDING ECONOMIC
AND POLITICAL INSTABILITY AND CURRENCY FLUCTUATIONS. LIPPER ANALYTICAL SERVICES,
INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.

22
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTO]

Following is an interview with NIGEL F. EMMETT, a portfolio manager with the
International Equity Group. Nigel joined J.P. Morgan in 1997. Prior to J.P.
Morgan, he was employed by Brown Brothers Harriman & Co. in New York and
Gartmore Investment Management in London. Nigel earned a BA degree in Economics
from Manchester University, is an Associate Member of the Institute of
Investment Management and Research (AIIMR), and is a Chartered Financial
Analyst. This interview was conducted on July 9, 1998, and reflects Nigel's
views on that date.

PLEASE PROVIDE A BRIEF SUMMARY AS TO THE PERFORMANCE OF EQUITY MARKETS OVER THE
PAST SIX MONTHS.

NFE: There was a sharp contrast in performance between the developed and the
emerging markets during the six-month period ending June, with returns being
quite respectable in the developed markets, but quite poor in the emerging
markets.

Asian markets, such as Indonesia and Malaysia, in particular, had problems.
Even the more developed markets of Hong Kong and Singapore also disappointed
during the period. Although the economies of these countries are stronger and
much better financed, Hong Kong and Singapore were still affected by the malaise
of Asia's storm.

Regarding emerging markets in Latin America, the Asian crisis affected Latin
America in several major ways. First, it negatively impacted the prices of
copper and oil, two key commodities for the region. Secondly, it forced
governments to increase interest rates to defend their currencies, and to cut
back spending. However, compared with the much slower corrective action taken by
governments in Asia, the prompt responses by the Latin governments were better
received by investors. Performance in Latin America was good relative to Asia.

Emerging Europe -- Russia, in particular -- also had some difficulty during the
period. Concerns continued to build regarding the ability of the Russian
government to service its foreign debt.

Over the period as a whole, however, most developed markets managed to shake off
the doom-and-gloom surrounding the emerging markets, as the world saw good
returns from both the U.S. and the European equity markets.

IT SEEMED AS IF THE DUST WAS FINALLY BEGINNING TO SETTLE WITH REGARD TO THE
TURMOIL IN ASIA: CONDITIONS WERE IMPROVING AND MARKETS WERE STABILIZING. AND
THEN CAME MAY. WHAT EXACTLY WAS THE CATALYST FOR THE RENEWED VOLATILITY DURING
THAT MONTH?

NFE: It's true, emerging markets had settled down for a bit. The International
Monetary Fund (IMF) packages for Indonesia, etc. were finally in place. We also
saw a turnaround in the current-account balances of

23
<PAGE>

Thailand, Korea, and the Philippines. However, there was still much more
improvement that needed to be made. For instance, in Korea we needed to see the
large conglomerates restructure. And throughout the entire region, we needed to
see the banking sector more aggressively restructure its debt. While this was
beginning to happen, investors perceived it wasn't happening quickly enough.
Combined with the explosion of Indonesia's political situation, already fragile
markets were once again shaken in May, which started another downswing in
markets both within and outside of Asia.

WHAT IS GOING TO CORRECT ASIA'S TROUBLED SITUATION?

NFE: Aside from the structural problems that will take a long time to correct
- -- banking reform, bad loans, high foreign debt, and so forth, any shorter term
recovery would have to come from growth in external demand. With the Japanese
economy remaining so weak, it is difficult to see where that stimulus would come
from.

CAN YOU ELABORATE?

NFE: One notion: lack of demand for Asian exports. When Mexico had its problems
in 1994 and 1995, there was a still a ready market for Mexican exports in the
U.S. In essence, the U.S. provided the role of the proverbial big brother. In
Asia, the hope was that Japan would play somewhat of that big brother role.
However, given its own economic woes -- the fact that the Japanese economy is in
such poor shape, and domestic demand so weak -- well, that's adding further to
the woes in Asia. In other words, Asia will have a difficult time exporting its
way to recovery without Japan's help.

THEN LET ME REPHRASE MY PREVIOUS QUESTION: WHAT IS GOING TO CORRECT JAPAN'S
TROUBLED SITUATION?

NFE: In my mind, the government needs to turn around domestic demand by taking
some sort of action -- like cutting income taxes, for example. Its banking
system must also go through major reform. Because Japanese banks are in such bad
shape, there's been a contraction in the effective money supply: most small
companies -- the majority of employers -- no longer have available capital to
expand their businesses. So there is a real log-jam starting with the banking
system in Japan.

Japan has other major problems: inefficient corporate structures and practices
and little focus on the bottom line -- to name a couple. However, the banking
system and domestic demand are major problems that need to be addressed.

IS THERE ANYTHING POSITIVE ABOUT JAPAN RIGHT NOW?

NFE: Actually, export companies have been doing well, as the value of the yen
has significantly declined. A cheaper yen makes Japan's goods more globally
competitive, which offsets the weak demand experienced at home. While this
helps, there continues to be a high level of uncertainty regarding Japan's
future.

24
<PAGE>

AGAINST THIS BACKDROP, HOW HAS THE PORTFOLIO PERFORMED FOR THE SIX-MONTH PERIOD
ENDING JUNE?

NFE: The portfolio benefited from having underweight positions in Japan,
Malaysia, and Hong Kong. What was a negative for performance, however, was its
overweight position in emerging markets overall. While the portfolio maintained
its underweight position in emerging Asia, which was positive, its overweight
stance in Latin America detracted from performance versus its benchmark (the
MSCI All Country World ex-U.S. Index) for the period.

Regarding stock-selection decisions, many of the portfolio's positions in Europe
had done quite well. However, holdings in Japan detracted from returns. In the
first part of 1998, many of what we perceived to be lower-quality stocks
performed well in Japan, with little regard to either their earnings prospects
or the strength of their balance sheets. This resulted in underperformance from
the portfolio's Japanese exposure. However, as we entered the months of April
and May, the market began to focus more on what we perceived as higher-quality
companies with greater financial strength, which benefited the portfolio's
performance during these months.

HOW ARE YOU POSITIONING THE PORTFOLIO FOR OUTPERFORMANCE GOING FORWARD?

NFE: We are actually quite optimistic about the portfolio's prospects going
forward. We continue to believe that, in a relative sense, more promising equity
opportunities exist outside the U.S. market.

Specifically, we still think Europe offers a reasonably healthy environment: the
news flow remains positive, we continue to see earnings growth ahead of
expectations, and domestic demand is stronger than expected. Restructuring
continues, and merger-and-acquisition activity also continues to support share
prices. Despite the fact that the strength of sterling has hurt the exporters,
some U.K. companies are still quite attractive. Also, in some of the northern
European markets, such as Germany and France, there are attractive
opportunities, particularly in French banks.

In Asia, excluding Japan, we continue to be nervous about Malaysia, where we
feel that further economic restructuring is called for. Although, within the
region, we can find value in some Australian stocks.

We continue to think that the Japanese market will be difficult in the
short-term. While Japanese valuations are no longer extremely expensive when
compared with the rest of the world, many Japanese companies, particularly
domestic companies, still have fundamental issues to come to grips with.
Although there are some undervalued companies there, Japan will be challenging
during the next several months.

In terms of emerging markets, there too, it is going to be a difficult
environment. However, on a medium-term perspective, not focusing too much on
individual countries, but on bottom-up stock selection, there are some
interesting opportunities developing, particularly in some of the north-Asian
markets, such as Thailand, Korea, and the Philippines.

<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE
J.P. Morgan International Opportunities Portfolio seeks to provide a high total
return from a portfolio comprised of equity securities of foreign corporations.
The portfolio is designed for investors with a long-term investment horizon who
want to diversify their investments by adding international equities and take
advantage of investment opportunities outside the U.S. As an international
investment, the portfolio is subject to foreign market, political, and currency
risks.

- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
1/3/95

- --------------------------------------------------------------------------------
NET ASSETS AS OF 6/30/98
$9,201,808

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
12/18/98

- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98

EXPENSE RATIO
The portfolio's annualized expense ratio of 1.20% covers shareholders' expenses
for custody, tax reporting, investment advisory and shareholder services, after
reimbursement. The portfolio is no-load and does not charge any sales,
redemption, or exchange fees. There are no additional charges for buying,
selling, safekeeping portfolio shares, or for wiring redemption proceeds from
the portfolio.

PORTFOLIO HIGHLIGHTS
ALL DATA AS OF JUNE 30, 1998

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<S> <C>
EUROPE/AFRICA 72.5%

JAPAN 12.6%

ASIA PACIFIC 8.5%

LATIN AMERICA 5.1%

OTHER 1.3%
</TABLE>

VIVENDI (FRANCE) 2.46%

NESTLE SA (SWITZERLAND) 1.93%

RWE AG (GERMANY) 1.72%

MUENCHENER RUECKVERSICHERUNGS-
GESELLSCHAFT AG (GERMANY) 1.63%

SOCIETE GENERALE (FRANCE) 1.62%

DEUTSCHE BANK AG (GERMANY) 1.62%

IBERDROLA SA (SPAIN) 1.59%

RHODIA, INC. (FRANCE) 1.57%

DRESDNER BANK AG (GERMANY) 1.54%
</TABLE>

26
<PAGE>

DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. IS
THE TRUST'S INVESTMENT ADVISOR. SHARES OF THE PORTFOLIOS 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 portfolios 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 portfolios will continue to hold these
securities. Opinions expressed herein are subject to change without notice.

PLEASE CALL (800) 221-7930 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.

27
<PAGE>
J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- -------------- --------- -----------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (99.2%)
$ 1,590 United States Treasury Bills..................... 07/09/98 4.930% $ 1,588,258
50 United States Treasury Notes..................... 10/31/98 5.875 50,075
-----------
TOTAL U.S. TREASURY OBLIGATIONS.............. 1,638,333
-----------

OTHER INVESTMENT COMPANIES (0.9%)
15 Seven Seas Money Market Fund..................... 07/01/98 5.300 14,592
-----------
TOTAL INVESTMENTS (COST $1,652,890) (100.1%)................................. 1,652,925
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%)................................ (2,265)
-----------
NET ASSETS (100.0%).......................................................... $ 1,650,660
-----------
-----------
</TABLE>

- ------------------------------
Note: The cost of investments for federal income tax purposes at June 30, 1998,
was substantially the same as the cost for financial statement purposes. The
aggregate gross unrealized appreciation and depreciation was $35 and $0,
respectively, resulting in net unrealized appreciation of $35.

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

28
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTl SECURITY DESCRIPTION MOODY'S/S&P
------------------ ------------------------------------------------- ------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (14.1%)
FINANCIAL SERVICES (14.1%)
$ 200,000 Bear Stearns Structured Securities Inc., Remic:
Sequential Payer, Series 1997-2, Class 1A5,
Callable, (144A), 7.00% due 08/25/36........... Aaa/NR
75,000 BTC Mortgage Investment Trust, Series 1997-S1,
Class B, (144A), 6.45% due 12/31/09............ Aaa/AAA
189,580 Countrywide Home Loans, Remic: Sequential Payer,
Series 1998-5, Class A, Callable, 6.75% due
05/25/28....................................... NR/AAA
190,820 CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C2, Class A1,
Callable, 6.40% due 02/17/04................... Aaa/AAA
100,000 CS First Boston Mortgage Securities Corp., Series
1997-C2, Class B, Callable, 6.72% due
11/19/07....................................... Aa2/NR
175,000 Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A2,
Callable, 6.54% due 06/15/31................... Aaa/NR
172,815 Deutsche Mortgage & Asset Receiving Corp., Series
1998-C1, 6.22% due 06/15/31.................... AAA/Aaa
200,000 First Omni Credit Card Master Trust, Series
1996-A, Class A, Callable, 6.65% due
09/15/03....................................... Aaa/AAA
60,000 Green Tree Financial Corp., Sequential Payer,
Series 1994-1, Class A4, Callable, 7.20% due
04/15/19....................................... Aa2/NA
200,000 Green Tree Home Improvement Loan Trust,
Sequential Payer, AS, Series 1997-E, Class
HEA2, Callable, 6.39% due 01/15/29............. NR/AAA
15,150 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1996-A, Class
A1, Callable, 5.55% due 02/15/18............... Aaa/AAA
200,000 Morgan Stanley Capital I, Subordinated Bond,
CSTR, Series 1997-RR, Class D, Callable,
(144A), 7.76% due 04/30/39..................... NR/NR
168,177 Morgan Stanley Capital I, Sequential Payer, AFC,
Series 1998-WF1, Class A1, 6.25% due
07/15/07....................................... NR/AAA
4,760 Premier Auto Trust, Sequential Payer, Series
1993-6, Class A2, Callable, 4.65% due
11/02/99....................................... Aaa/AAA
299,983 Premier Auto Trust, Sequential Payer, Series
1995-3, Class A5, Callable, 6.15% due
03/06/00....................................... Aaa/AAA
200,000 Sears Credit Account Master Trust, Series 1996-2,
Class A, Callable, 6.50% due 10/15/03.......... Aaa/AAA
100,000 The Money Store Home Equity Trust, Series 1997-B,
Class A3, Callable, 6.52% due 07/15/12......... Aaa/AAA
84,541 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-A, Class A1,
Callable, 6.30% due 06/25/02................... Aaa/AAA
54,458 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-B, Class A1,
Callable, 5.95% due 11/15/02................... Aaa/AAA
49,974 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1997-A, Class A2,
Callable, 6.75% due 06/25/03................... Aaa/AAA
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$2,736,269)................................

<CAPTION>
PRINCIPAL
AMOUNTl VALUE
------------------ ------------
<C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED
FINANCIAL SERVICES (14.1%)
$ 200,000

$ 200,500
75,000
75,117
189,580

188,366
190,820

193,145
100,000

102,906
175,000

178,760
172,815
174,125
200,000

205,814
60,000

61,934
200,000

201,122
15,150

15,083
200,000

192,812
168,177

170,489
4,760

4,729
299,983

301,029
200,000
201,164
100,000
101,286
84,541

84,630
54,458

54,479
49,974

50,994
------------

2,758,484
------------
</TABLE>

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

29
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTl SECURITY DESCRIPTION MOODY'S/S&P
------------------ ------------------------------------------------- ------------
<C> <S> <C>
CONVERTIBLE BONDS (0.0%)
RETAIL (0.0%)
$ 10,000 Corporate Express, Inc., Callable 07/01/99, 4.50%
due 07/01/00 (cost $8,992)..................... B3/B

CORPORATE OBLIGATIONS (18.0%)
AEROSPACE (0.9%)
50,000 Lockheed Martin Corp., 6.55% due 05/15/99........ A3/BBB+
100,000 Northrop Grumman Corp., Callable 10/15/04, 9.38%
due 10/15/24................................... Baa3/BBB-

APPARELS & TEXTILES (0.2%)
25,000 Fruit of the Loom Inc., 6.50% due 11/15/03....... BB+/Ba1
25,000 Fruit of the Loom Inc., 7.88% due 10/15/99....... Ba1/BBB-

BANKING (0.3%)
50,000 Keycorp, 8.40% due 04/01/99...................... A2/BBB+

BROADCASTING & PUBLISHING (0.4%)
27,000 Capstar Broadcasting, Callable 02/01/02, 12.75%
due 02/01/09................................... NR/B-
40,000 Clear Channel Communication, Inc., Callable,
7.25% due 10/15/27............................. Baa3/BBB-
15,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07............................ Ba3/BB+

CHEMICALS (0.8%)
150,000 Cytec Industries Inc., 6.85% due 05/11/05 (v).... BBB/Baa2

ELECTRIC (0.3%)
50,000 Pacific Corp., Series H, Callable, 6.75% due
07/15/04....................................... A2/A

ELECTRONICS (0.3%)
50,000 Motorola Inc., 7.50% due 05/15/25................ Aa3/AA

ENERGY SOURCE (0.6%)
100,000 NGC Corp., 7.63% due 10/15/26.................... Baa2/BBB+

<CAPTION>
PRINCIPAL
AMOUNTl VALUE
------------------ ------------
<C> <C>
CONVERTIBLE BONDS (0.0%)
RETAIL (0.0%)
$ 10,000
$ 9,187
------------
CORPORATE OBLIGATIONS (18.0%)
AEROSPACE (0.9%)
50,000 50,217
100,000
120,852
------------
171,069
------------
APPARELS & TEXTILES (0.2%)
25,000 24,165
25,000 25,273
------------
49,438
------------
BANKING (0.3%)
50,000 50,833
------------
BROADCASTING & PUBLISHING (0.4%)
27,000
20,520
40,000
42,062
15,000
16,650
------------
79,232
------------
CHEMICALS (0.8%)
150,000 150,594
------------
ELECTRIC (0.3%)
50,000
51,466
------------
ELECTRONICS (0.3%)
50,000 57,164
------------
ENERGY SOURCE (0.6%)
100,000 111,124
------------
</TABLE>

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

30
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTl SECURITY DESCRIPTION MOODY'S/S&P
------------------ ------------------------------------------------- ------------
<C> <S> <C>
ENTERTAINMENT, LEISURE & MEDIA (0.6%)
$ 30,000 Fox/Liberty Networks LLC, Callable 08/15/02,
8.88% due 08/15/07............................. B1/B
30,000 Jacor Communications Co., Series B, Callable
06/15/02, 8.75% due 06/15/07................... B2/B
50,000 Lamar Advertising Co., Callable 09/15/02, 8.63%
due 09/15/07................................... B1/B

FINANCIAL SERVICES (8.5%)
100,000 ABN Amro Bank NV (Chicago), 7.55% due 06/28/06... Aa2/AA-
45,000 Associates Corp. North America, 5.96% due
05/15/37....................................... Aa3/AA-
100,000 Banc One Corp., 7.63% due 10/15/26............... A1/A+
50,000 Chrysler Financial Corp., Series P, 6.32% due
07/14/99....................................... A3/A
50,000 FCB/NC Capital Trust 1, Callable 03/01/08,
(144A), 8.05% due 03/01/28..................... Baa3/BB+
50,000 Ford Motor Credit Co., 6.38% due 09/15/99........ A1/A
300,000 Ford Motor Credit Corp., 7.47% due 07/29/99...... A1/A
50,000 General Motors Acceptance Corp., 5.90% due
03/06/00....................................... A3/A-
300,000 General Motors Acceptance Corp., 6.70% due
06/24/99....................................... A2/A
50,000 Household Finance Co., 6.78% due 04/17/01........ A2/A
100,000 Keystone Financial Inc., 6.50% due 05/31/08...... BBB+/Baa2
100,000 Nationsbank Corp., 7.25% due 10/15/25............ A2/A
100,000 Safeco Capital Trust I, 8.07% due 07/15/37....... NR/NR
50,000 Sears Roebuck Acceptance Corp., Series 1, 6.22%
due 03/25/99................................... A2/A-
175,000 US West Capital Funding Inc., 6.25% due
07/15/05....................................... A3/A-

HEALTH SERVICES (0.5%)
25,000 Genesis Health Ventures Inc., Callable 06/15/00,
9.75% due 06/15/05............................. B2/B-
10,000 Paracelsus Healthcare Corp., Callable 08/15/01,
10.00% due 08/15/06............................ B3/B-
40,000 Tenet Healthcare Corp., (144A), Callable, 7.63%
due 06/01/08................................... BB-/Ba3
15,000 Tenet Healthcare Corp., Callable 01/15/02, 8.63%
due 01/15/07................................... Ba3/B+

METALS & MINING (0.3%)
50,000 P&L Coal Holdings Corp., (144A), Callable
05/15/03, 9.63% due 05/15/08................... B/B2

MULTI - INDUSTRY (0.5%)
100,000 LasmoUSA Inc., 7.30% due 11/15/27................ Baa2/BBB

NATURAL GAS (1.4%)
50,000 Atlantic Richfield Co., 8.25% due 02/01/22....... A2/A
200,000 Columbia Gas Systems, Series G, 7.62% due
11/28/25....................................... Baa1/BBB+

<CAPTION>
PRINCIPAL
AMOUNTl VALUE
------------------ ------------
<C> <C>
ENTERTAINMENT, LEISURE & MEDIA (0.6%)
$ 30,000
$ 30,375
30,000
31,200
50,000
51,187
------------
112,762
------------
FINANCIAL SERVICES (8.5%)
100,000 108,405
45,000
45,246
100,000 112,229
50,000
50,204
50,000
51,876
50,000 50,241
300,000 304,737
50,000
49,948
300,000
302,520
50,000 50,941
100,000 100,321
100,000 108,445
100,000 108,021
50,000
50,130
175,000
174,263
------------
1,667,527
------------
HEALTH SERVICES (0.5%)
25,000
25,625
10,000
9,925
40,000
40,213
15,000
15,571
------------
91,334
------------
METALS & MINING (0.3%)
50,000
51,375
------------
MULTI - INDUSTRY (0.5%)
100,000 105,267
------------
NATURAL GAS (1.4%)
50,000 60,911
200,000
211,710
------------
272,621
------------
</TABLE>

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

31
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTl SECURITY DESCRIPTION MOODY'S/S&P
------------------ ------------------------------------------------- ------------
<C> <S> <C>
OIL-PRODUCTION (0.2%)
$ 30,000 Ocean Energy Inc., Series B, Callable 07/15/02,
8.88% due 07/15/07............................. B3/BB-
15,000 Plains Resources Inc., Series D, Callable
03/15/01, 10.25% due 03/15/06.................. NR/B

PERSONAL CARE (0.3%)
50,000 Procter & Gamble Co., 6.45% due 01/15/26......... Aa2/AA

POLLUTION CONTROL (0.0%)
5,000 Allied Waste North America Inc., Callable
12/01/01, 10.25% due 12/01/06.................. B2/B+

TELECOMMUNICATIONS (0.2%)
15,000 McLeodUSA, Inc., Callable 07/15/02, 9.25% due
07/15/07....................................... B2/B+
15,000 Qwest Communications International Inc., Series
B, Callable 04/01/02, 10.88% due 04/01/07...... B2/B+

TELEPHONE (1.3%)
250,000 Pacific Bell/SBC Communications Inc., 6.13% due
02/15/08....................................... AA-/A1

TEXTILES (0.2%)
15,000 Polymer Group Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07............................. B2/B
20,000 Westpoint Stevens Inc. (144A), 7.88% due
06/15/05....................................... Ba3/BB

TRANSPORTATION (0.1%)
15,000 Atlantic Express Transportation Corp., Callable
02/01/01, 10.75% due 02/01/04.................. B2/B

UTILITIES (0.1%)
15,000 Calpine Corp., (144A), 7.88% due 04/01/08........ Ba2/BB-
TOTAL CORPORATE OBLIGATIONS (COST
$3,378,893)................................
FOREIGN CORPORATE OBLIGATIONS (4.5%)
CANADA (3.1%)
BANKING
75,000 Canadian Imperial Bank, 6.20% due 08/01/00....... Aa3/AA-

<CAPTION>
PRINCIPAL
AMOUNTl VALUE
------------------ ------------
<C> <C>
OIL-PRODUCTION (0.2%)
$ 30,000
$ 31,350
15,000
15,638
------------
46,988
------------
PERSONAL CARE (0.3%)
50,000 51,113
------------
POLLUTION CONTROL (0.0%)
5,000
5,506
------------
TELECOMMUNICATIONS (0.2%)
15,000
15,525
15,000
17,381
------------
32,906
------------
TELEPHONE (1.3%)
250,000
248,728
------------
TEXTILES (0.2%)
15,000
15,263
20,000
20,000
------------
35,263
------------
TRANSPORTATION (0.1%)
15,000
15,975
------------
UTILITIES (0.1%)
15,000 14,813
------------

3,473,098
------------
FOREIGN CORPORATE OBLIGATIONS (4.5%)
CANADA (3.1%)
BANKING
75,000 75,515
------------
</TABLE>

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

32
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTl SECURITY DESCRIPTION MOODY'S/S&P
------------------ ------------------------------------------------- ------------
<C> <S> <C>
FINANCIAL SERVICES
$ 200,000 McKesson Finance of Canada, (144A), 6.55% due
11/01/02....................................... A3/A

FOOD, BEVERAGES & TOBACCO
25,000 Cott Corp., Callable 07/01/00, 8.50% due
05/01/07....................................... Ba3/B+

OIL PRODUCTION
50,000 Express Pipeline LP, Series B, Sinking Fund,
Callable, (144A), 7.39% due 12/31/17........... Baa3/BBB-

TRANSPORT & SERVICES
250,000 Laidlaw Inc., 6.50% due 05/01/05................. Baa3/BBB+

CHINA (0.1%)
FINANCIAL SERVICES
40,000 Guangdong International Trust & Investment Corp.,
(144A), 8.75% due 10/24/16..................... Baa2/BBB-

MEXICO (0.2%)
FOREST PRODUCTS & PAPER
35,000 Copamex Industrias SA de CV, Series B, Callable
04/30/02, 11.38% due 04/30/04.................. NR/NR

PHILIPPINES (0.1%)
TELEPHONE
15,000 Philippine Long Distance Telephone, Series E,
7.85% due 03/06/07............................. Ba2/BB+

UNITED KINGDOM (0.9%)
BANKING
175,000 Midland Bank PLC, 7.63% due 06/15/06............. Aa3/A

VENEZUELA (0.1%)
FINANCIAL SERVICES
15,000 CANTV Finance Ltd., 9.25% due 02/01/04........... Ba2/B+
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$892,460)..................................

<CAPTION>
PRINCIPAL
AMOUNTl VALUE
------------------ ------------
<C> <C>
FINANCIAL SERVICES
$ 200,000
$ 202,320
------------
FOOD, BEVERAGES & TOBACCO
25,000
24,625
------------
OIL PRODUCTION
50,000
49,250
------------
TRANSPORT & SERVICES
250,000 250,298
------------
602,008
------------
CHINA (0.1%)
FINANCIAL SERVICES
40,000
30,963
------------
MEXICO (0.2%)
FOREST PRODUCTS & PAPER
35,000
36,400
------------
PHILIPPINES (0.1%)
TELEPHONE
15,000
13,022
------------
UNITED KINGDOM (0.9%)
BANKING
175,000 188,074
------------
VENEZUELA (0.1%)
FINANCIAL SERVICES
15,000 14,259
------------

884,726
------------
</TABLE>

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

33
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTl SECURITY DESCRIPTION MOODY'S/S&P
------------------ ------------------------------------------------- ------------
<C> <S> <C>
FOREIGN GOVERNMENT OBLIGATIONS (12.2%)
CANADA (2.6%)
$ 175,000 Hydro-Quebec, Series HQ, 9.50% due 11/15/30...... A2/A+
250,000 Province of Ontario, 7.63% due 06/22/04.......... Aa3/AA-

FRANCE (4.8%)
FRF 5,600,000 Government of France, 4.75% due 03/12/02......... NR/NR

GERMANY (4.8%)
DEM 1,545,000 German Unity Fund, 8.50% due 02/20/01............ NR/NR
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$2,411,141)................................

SOVEREIGN BONDS (1.0%)
BRAZIL (0.2%)
58,011 Republic of Brazil C Bonds, Callable 10/15/98,
Sinking Fund, 8.00% due 04/15/14 (v)........... B1/BB-

ITALY (0.5%)
100,000 Republic of Italy, 6.88% due 09/27/23............ Aa3/AA

MEXICO (0.2%)
50,000 Petroleos Mexicanos, (144A), 7.75% due
10/29/99....................................... Ba2/BB

POLAND (0.1%)
15,000 Republic of Poland, (144A), Callable 04/27/98,
4.00% due 10/27/14 (v)......................... Baa3/BBB-
TOTAL SOVEREIGN BONDS (COST $207,442)........

<CAPTION>
PRINCIPAL
AMOUNTl VALUE
------------------ ------------
<C> <C>
FOREIGN GOVERNMENT OBLIGATIONS (12.2%)
CANADA (2.6%)
$ 175,000 $ 241,413
250,000 271,560
------------
512,973
------------
FRANCE (4.8%)
FRF 5,600,000 940,029
------------
GERMANY (4.8%)
DEM 1,545,000 947,097
------------

2,400,099
------------
SOVEREIGN BONDS (1.0%)
BRAZIL (0.2%)
58,011
42,783
------------
ITALY (0.5%)
100,000 109,377
------------
MEXICO (0.2%)
50,000
50,275
------------
POLAND (0.1%)
15,000
13,500
------------
215,935
------------
</TABLE>

<TABLE>
<CAPTION>
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (25.8%)
FEDERAL HOME LOAN MORTGAGE CORP. (10.4%)
122,200 6.00% due 04/01/11............................... 121,202
310,000 6.50% due 09/15/23............................... 314,610
1,800 6.50% due 06/01/28............................... 1,794
115,945 7.00% due 02/01/26............................... 117,639
1,305,437 7.00% due 02/01/28............................... 1,325,006
35,244 8.00% due 11/01/26............................... 36,418
118,570 8.50% due 08/01/26............................... 123,548
------------
2,040,217
------------
</TABLE>

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

34
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTl SECURITY DESCRIPTION VALUE
--------------- ------------------------------------------------- ------------
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.8%)
$ 349,708 7.00% due 05/01/28............................... $ 354,625
81,371 8.50% due 05/01/09............................... 84,608
300,000 Remic: PAC-1(11), Series 1993-78, Class G, 6.50%
due 11/25/07................................... 305,697
------------
744,930
------------

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (11.6%)
105,964 6.50% due 12/15/23............................... 105,813
346,527 7.00% due 08/15/12............................... 355,052
550,000 7.00% due 02/15/28............................... 558,762
114,226 7.50% due 02/15/26............................... 117,310
92,871 7.50% due 02/15/27............................... 95,407
814,562 7.50% due 05/15/28............................... 836,962
205,139 7.50% due 06/15/28............................... 210,780
------------
2,280,086
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $5,048,037)........................... 5,065,233
------------

U.S. TREASURY OBLIGATIONS (14.7%)
U.S. TREASURY BONDS (6.7%)
470,000 6.50% due 11/15/26............................... 521,526
703,000 6.75% due 08/15/26............................... 804,253
------------
1,325,779
------------

U.S. TREASURY NOTES (8.0%)
5,000 5.75% due 08/15/03............................... 5,052
505,000 5.88% due 02/15/00............................... 507,707
312,000 6.25% due 02/28/02............................... 318,905
485,000 6.63% due 06/30/01............................... 498,944
210,000 6.88% due 05/15/06............................... 227,262
15,000 7.88% due 11/15/04............................... 16,839
------------
1,574,709
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$2,846,786)................................. 2,900,488
------------
</TABLE>

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

35
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY DESCRIPTION MOODY'S/S&P VALUE
- ----------------- ------------------------------------------------- ------------ ------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS (0.5%)
INDUSTRIAL PRODUCTS & SERVICES (0.5%)
100 Home Ownership Funding, (144A), 13.33% due
12/30/06 (cost $100,104)....................... Aaa/NR $ 95,645
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTl
---------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (10.8%)
U.S. TREASURY OBLIGATIONS (10.8%)
U.S. TREASURY BILLS
$ 2,119,000 4.64-4.81%, due 07/23/98 (s)..................... 2,112,832
11,000 4.85%, due 07/09/98.............................. 10,988
------------
2,123,820
------------

OTHER INVESTMENT COMPANIES (0.0%)
51 Seven Seas Money Market Fund 5.30% due
07/01/98....................................... 51
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$2,123,871)................................. 2,123,871
------------
TOTAL INVESTMENTS (COST $19,753,995) (101.6%).... 19,926,766
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.6%).... (311,240)
------------
NET ASSETS (100.0%).............................. $ 19,615,526
------------
------------
</TABLE>

- ------------------------------
Note: The cost of investments for federal income tax purposes at June 30, 1998
was substantially the same as the cost for financial statement purposes. The
aggregate gross unrealized appreciation and depreciation was $269,775 and
$58,444, respectively, resulting in net unrealized appreciation of $211,331.

l Denominated in USD unless otherwise indicated.

(s) Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.

(v) Rate shown reflects current rate on variable or floating rate instrument or
instrument with step coupon rate.

Abbreviations used in the schedule of investments are as follows:

144A -- Securities restricted for resale to Qualified Institutional Buyers.

DEM -- German Marc

FRF -- French Franc

NR -- Not Rated

Remic -- Real Estate Mortgage Investment Conduit

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

36
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
COMMON STOCKS (97.5%)
BASIC INDUSTRIES (6.2%)
CHEMICALS (3.4%)
E.I. du Pont de Nemours & Co..................... 2,900 $ 216,412
Rohm & Haas Co................................... 1,700 176,694
Union Carbide Corp............................... 900 48,037
------------
441,143
------------
FOREST PRODUCTS & PAPER (1.4%)
Georgia-Pacific Corp............................. 500 29,469
Temple-Inland, Inc............................... 2,800 150,850
------------
180,319
------------

METALS & MINING (1.4%)
Allegheny Teledyne, Inc.......................... 8,200 187,575
------------
TOTAL BASIC INDUSTRIES......................... 809,037
------------

CONSUMER GOODS & SERVICES (22.0%)
AUTOMOTIVE (0.7%)
Goodyear Tire and Rubber Co...................... 1,400 90,212
------------

BROADCASTING & PUBLISHING (1.1%)
Comcast Corp., Class A........................... 3,500 142,078
------------
ENTERTAINMENT, LEISURE & MEDIA (4.1%)
Hasbro, Inc...................................... 2,400 94,350
International Game Technology.................... 7,100 172,175
Mirage Resorts, Inc.+............................ 2,900 61,806
Seagram Company Ltd.(i).......................... 5,100 208,781
------------
537,112
------------

FOOD, BEVERAGES & TOBACCO (7.6%)
Anheuser Busch Companies, Inc.................... 4,900 231,219
General Mills, Inc............................... 2,000 136,750
PepsiCo, Inc..................................... 4,300 177,106
Philip Morris Companies, Inc..................... 7,400 291,375
Ralston-Ralston Purina Group..................... 1,300 151,856
------------
988,306
------------

HOUSEHOLD PRODUCTS (2.0%)
Procter & Gamble Co.............................. 2,800 254,975
------------

<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>

RETAIL (6.5%)
Circuit City Stores, Inc......................... 5,200 $ 243,750
Federated Department Stores, Inc.+............... 2,600 139,912
Gap, Inc......................................... 2,100 129,412
Kmart Corp.+..................................... 7,300 140,525
Toys 'R' Us, Inc.+............................... 4,100 96,606
Wal-Mart Stores, Inc............................. 1,500 91,125
------------
841,330
------------
TOTAL CONSUMER GOODS & SERVICES................ 2,854,013
------------

ENERGY (9.6%)
OIL-PRODUCTION (6.4%)
Atlantic Richfield Co............................ 3,000 234,375
British Petroleum Co. PLC (Spons. ADR)........... 9 794
Exxon Corp....................................... 3,000 213,937
Mobil Corp....................................... 2,700 206,887
Phillips Petroleum Co............................ 3,800 183,113
------------
839,106
------------

OIL-SERVICES (3.2%)
Cooper Cameron Corp.+............................ 1,400 71,400
Tosco Corp....................................... 11,700 343,688
------------
415,088
------------
TOTAL ENERGY................................... 1,254,194
------------

FINANCE (16.6%)
BANKING (6.1%)
Astoria Financial Corp........................... 1,100 58,919
First Union Corp................................. 6,000 349,500
Long Island Bancorp, Inc......................... 800 48,550
NationsBank Corp................................. 2,300 175,950
Washington Mutual, Inc........................... 1,950 84,642
Wells Fargo & Co................................. 200 73,800
------------
791,361
------------

FINANCIAL SERVICES (5.2%)
Associates First Capital Corp., Class A.......... 1,600 123,000
Citicorp......................................... 800 119,400
Federal National Mortgage Association............ 3,900 236,925
</TABLE>

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

37
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
Norwest Corp..................................... 1,200 $ 44,850
Travelers Group, Inc............................. 2,464 149,380
------------
673,555
------------
INSURANCE (3.0%)
Ambac Financial Group, Inc....................... 2,200 128,700
American International Group, Inc................ 300 43,800
Marsh & McLennan Companies, Inc.................. 2,250 135,984
UNUM Corp........................................ 1,400 77,700
------------
386,184
------------

REAL ESTATE INVESTMENT TRUSTS (2.3%)
Starwood Hotels & Resorts........................ 6,200 299,538
------------
TOTAL FINANCE.................................. 2,150,638
------------

HEALTHCARE (13.6%)
HEALTH SERVICES (4.1%)
Humana, Inc.+.................................... 4,900 152,819
Perkin-Elmer Corp................................ 2,400 149,250
United Healthcare Corp........................... 3,600 228,600
------------
530,669
------------

PHARMACEUTICALS (9.5%)
Alza Corp.+...................................... 3,500 151,375
American Home Products Corp...................... 6,200 320,850
Bristol-Myers Squibb Co.......................... 3,200 367,800
Monsanto Co...................................... 2,100 117,338
Warner-Lambert Co................................ 4,100 284,438
------------
1,241,801
------------
TOTAL HEALTHCARE............................... 1,772,470
------------
INDUSTRIAL PRODUCTS & SERVICES (9.5%)
COMMERCIAL SERVICES (2.0%)
Boeing Co........................................ 4,500 200,531
Coltec Industries, Inc.+......................... 3,000 59,625
------------
260,156
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>

DIVERSIFIED MANUFACTURING (5.5%)
AlliedSignal, Inc................................ 4,400 $ 195,250
Cooper Industries, Inc........................... 2,700 148,331
Sensormatic Electronics Corp..................... 7,100 99,400
Tyco International Ltd........................... 4,416 278,208
------------
721,189
------------

POLLUTION CONTROL (2.0%)
Waste Management, Inc............................ 7,300 255,500
------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 1,236,845
------------

TECHNOLOGY (10.8%)
COMPUTER PERIPHERALS (2.2%)
EMC Corp.+....................................... 6,300 282,319
------------

COMPUTER SOFTWARE (2.3%)
Autodesk, Inc.................................... 1,300 50,091
Computer Associates International, Inc........... 2,200 122,238
Oracle Corp.+.................................... 5,000 122,656
------------
294,985
------------

COMPUTER SYSTEMS (4.3%)
International Business Machines Corp............. 2,900 332,956
Sun Microsystems, Inc.+.......................... 5,300 230,384
------------
563,340
------------

ELECTRONICS (1.5%)
Bay Networks, Inc.+.............................. 3,900 125,775
Cisco Systems, Inc.+............................. 700 64,466
------------
190,241
------------

SEMICONDUCTORS (0.1%)
General Semiconductor, Inc.+..................... 800 7,900
------------

TELECOMMUNICATIONS-EQUIPMENT (0.4%)
Commscope, Inc.+................................. 3,066 49,631
------------
TOTAL TECHNOLOGY............................... 1,388,416
------------
</TABLE>

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

38
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
TRANSPORTATION (1.8%)
RAILROADS (1.8%)
Union Pacific Corp............................... 5,300 $ 233,863
------------
UTILITIES (7.4%)
ELECTRIC (2.6%)
Central & South West Corp........................ 4,400 118,250
Northern States Power Co......................... 3,400 97,325
Texas Utilities Co............................... 3,000 124,875
------------
340,450
------------
GAS-PIPELINES (0.9%)
Columbia Energy Group............................ 2,200 122,375
------------

TELEPHONE (3.9%)
GTE Corp......................................... 3,500 194,688
SBC Communications, Inc.......................... 4,400 176,000
WorldCom, Inc.+.................................. 2,800 135,363
------------
506,051
------------
TOTAL UTILITIES................................ 968,876
------------
TOTAL COMMON STOCKS (COST $11,423,802)......... 12,668,352
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.6%)
OTHER INVESTMENT COMPANIES (0.4%)
Seven Seas Money Market Fund 5.30% due
07/01/98....................................... 48,284 48,284
------------

<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>

U.S. TREASURY OBLIGATIONS (4.2%)
U.S. Treasury Bill 4.50% - 4.82% due 07/09/98 -
07/23/98....................................... 544,000 $ 543,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $591,284)... 591,284
------------
TOTAL INVESTMENTS (COST $12,015,086) (102.1%).................
13,259,636
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.1%).................
(270,421)
------------
NET ASSETS (100.0%)........................................... $ 12,989,215
------------
------------
</TABLE>

- ------------------------------
Note: Based on the cost of investments of $12,019,450 for federal income tax
purposes at June 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $1,514,580 and $274,394 respectively, resulting in net
unrealized appreciation of $1,240,186.

+ Non-income producing security.

(i) Foreign security.

ADR - American Depositary Receipt.

Spons. ADR - Sponsored American Depositary Receipt.

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

39
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
COMMON STOCKS (95.9%)
BASIC INDUSTRIES (10.2%)
AGRICULTURE (2.1%)
Dekalb Genetics Corp., Class B................... 1,300 $ 123,012
-----------

CHEMICALS (2.3%)
Albemarle Corp................................... 2,500 55,156
Bush Boake Allen, Inc.+.......................... 800 23,450
General Chemical Group, Inc...................... 300 8,325
Geon Co.......................................... 1,000 22,937
Minerals Technologies, Inc....................... 300 15,262
OM Group, Inc.................................... 150 6,187
Wellman, Inc..................................... 200 4,537
-----------
135,854
-----------

FOREST PRODUCTS & PAPER (1.7%)
American Pad & Paper Co.+........................ 4,300 19,350
Caraustar Industries, Inc........................ 2,100 60,309
Universal Forest Products, Inc................... 1,200 19,612
-----------
99,271
-----------

METALS & MINING (4.1%)
Commercial Metals Co............................. 2,600 79,950
Mueller Industries, Inc.+........................ 2,200 81,675
Schnitzer Steel Industries, Inc., Class A........ 1,600 37,600
Steel Technologies, Inc.......................... 3,700 37,694
-----------
236,919
-----------
TOTAL BASIC INDUSTRIES......................... 595,056
-----------
CONSUMER GOODS & SERVICES (12.9%)
APPARELS & TEXTILES (1.0%)
Ashworth, Inc.+.................................. 2,400 33,300
Genesco, Inc.+................................... 1,500 24,469
-----------
57,769
-----------

AUTOMOTIVE (0.4%)
Amcast Industrial Corp........................... 800 14,900
Sonic Automotive, Inc.+.......................... 500 8,219
-----------
23,119
-----------

<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

BROADCASTING & PUBLISHING (1.1%)
Banta Corp....................................... 600 $ 18,412
Digital Generation Systems, Inc.+................ 300 1,087
Emmis Broadcasting Corp., Class A+............... 300 14,391
HA-LO Industries, Inc.+.......................... 500 15,562
Journal Register Co.+............................ 200 3,350
Ziff-Davis, Inc.+................................ 1,000 13,875
-----------
66,677
-----------

EDUCATION (0.3%)
Education Management Corp.+...................... 300 9,900
ITT Educational Services, Inc.+.................. 200 6,450
-----------
16,350
-----------

ENTERTAINMENT, LEISURE & MEDIA (0.9%)
Cinar Films Inc., Class B+....................... 200 3,800
Imax Corp.+...................................... 1,400 31,762
Steiner Leisure, Ltd.+(i)........................ 600 18,225
-----------
53,787
-----------

FOOD, BEVERAGES & TOBACCO (0.5%)
American Italian Pasta Co., Class A+............. 400 14,900
Beringer Wine Estates Holdings, Inc., Class B+... 300 13,209
-----------
28,109
-----------

HOUSEHOLD APPLIANCES & FURNISHINGS (1.9%)
Aaron Rents, Inc................................. 2,000 40,000
Bush Industries, Inc., Class A................... 2,600 56,550
Stanley Furniture Co., Inc.+..................... 600 15,412
-----------
111,962
-----------

RESTAURANTS & HOTELS (1.4%)
Applebee's International, Inc.................... 300 6,722
Candlewood Hotel Company, Inc.+.................. 1,900 14,369
Extended Stay America, Inc.+..................... 800 9,000
Friendly Ice Cream Corp.+........................ 500 8,406
Papa John's International, Inc.+................. 600 23,681
Showbiz Pizza Time, Inc.+........................ 500 20,156
-----------
82,334
-----------
</TABLE>

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

40
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
RETAIL (5.4%)
Central Garden & Pet Co.+........................ 1,000 $ 31,062
Delia's, Inc.+................................... 500 7,969
Fingerhut Companies, Inc......................... 200 6,600
Garden Ridge Corp.+.............................. 4,300 83,716
Guitar Center, Inc.+............................. 600 18,112
Let's Talk Cellular & Wireless, Inc.+............ 200 2,587
Lithia Motors, Inc., Class A+.................... 1,000 14,625
Pacific Sunwear of California+................... 300 10,519
Party City Corp.+................................ 1,150 33,494
ShopKo Stores, Inc.+............................. 900 30,600
Sunglass Hut International, Inc.+................ 1,500 16,547
Urban Outfitters, Inc.+.......................... 3,300 60,431
-----------
316,262
-----------
TOTAL CONSUMER GOODS & SERVICES................ 756,369
-----------

ENERGY (3.6%)
GAS EXPLORATION (1.7%)
Devon Energy Corp................................ 600 20,962
Newfield Exploration Co.+........................ 1,200 29,850
Patterson Energy, Inc.+.......................... 2,600 25,472
St. Mary Land & Exploration Co................... 500 12,078
Tesoro Petroleum Corp............................ 700 11,112
-----------
99,474
-----------

OIL-PRODUCTION (0.7%)
Plains Resources, Inc.+.......................... 700 12,512
Snyder Oil Corp.................................. 500 9,969
Vintage Petroleum, Inc........................... 1,000 18,875
-----------
41,356
-----------

OIL-SERVICES (1.2%)
Dril-Quip, Inc.+................................. 500 13,125
Input/Output, Inc.+.............................. 1,600 28,500
National-Oilwell, Inc.+.......................... 1,000 26,812
-----------
68,437
-----------
TOTAL ENERGY................................... 209,267
-----------

FINANCE (23.5%)
BANKING (8.6%)
Bank of Commerce................................. 700 13,103
Bank United Corp., Class A....................... 1,400 67,112
Banknorth Group, Inc............................. 1,200 44,325
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
BANKING (CONTINUED)
Colonial BancGroup, Inc.......................... 1,200 $ 38,700
Commercial Federal Corp.......................... 450 14,231
Community First Bankshares, Inc.................. 1,000 26,406
First International Bancorp, Inc................. 300 4,331
FirstFed Financial Corp.+........................ 800 41,600
Flagstar Bancorp, Inc............................ 800 19,550
GBC Bancorp...................................... 1,000 26,562
Hamilton Bancorp, Inc.+.......................... 200 7,175
HUBCO, Inc....................................... 1,472 52,762
Imperial Bancorp+................................ 200 6,000
InterWest Bancorp, Inc........................... 300 13,050
Irwin Financial Corp............................. 600 17,550
National Commerce Bancorporation................. 1,000 41,875
Prime Bancshares, Inc............................ 400 10,150
Republic Banking Corp. of Florida................ 600 9,525
Southwest Bancorporation of Texas, Inc.+......... 600 11,325
Sterling Bancshares, Inc......................... 300 4,744
Summit Bancshares, Inc........................... 200 4,175
Sun Bancorp, Inc.+............................... 157 4,141
Trustco Bank Corp................................ 765 20,272
-----------
498,664
-----------

FINANCIAL SERVICES (1.7%)
Amresco, Inc.+................................... 500 14,531
First Alliance Corp.+............................ 100 722
Hanover Capital Mortgage Holdings, Inc........... 200 2,125
Investors Financial Services Corp................ 200 10,612
Litchfield Financial Corp........................ 805 16,855
Ocwen Financial Corp.+........................... 400 10,750
Waddell & Reed Financial, Inc., Class A.......... 400 9,575
Willis Lease Finance Corp.+...................... 1,500 34,500
-----------
99,670
-----------

INSURANCE (6.4%)
Annuity and Life Re (Holdings), Ltd.+(i)......... 1,400 31,237
Capital Re Corp.................................. 3,100 222,037
RenaissanceRe Holdings, Ltd.(i).................. 2,500 115,781
-----------
369,055
-----------
</TABLE>

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

41
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (6.8%)
American General Hospitality Corp................ 800 $ 17,000
Arden Realty Group, Inc.......................... 2,100 54,337
Brandywine Realty Trust.......................... 500 11,187
Burnham Pacific Properties, Inc.................. 1,600 22,700
Camden Property Trust............................ 759 22,580
CBL & Associates Properties, Inc................. 900 21,825
Correctional Properties Trust+................... 200 4,050
Cousins Properties, Inc.......................... 1,100 32,862
Developers Diversified Realty Corp............... 300 11,756
ElderTrust....................................... 400 6,875
Entertainment Properties Trust................... 300 5,475
Impac Commercial Holdings, Inc................... 200 2,875
LaSalle Hotel Properties+........................ 500 8,469
Manufactured Home Communities, Inc............... 1,000 24,125
Merry Land & Investment Company, Inc............. 800 16,850
Mills Corp....................................... 500 12,000
National Golf Properties, Inc.................... 500 15,031
Post Properties, Inc............................. 1,069 41,156
Sunstone Hotel Investors, Inc.................... 1,100 14,644
Tower Realty Trust, Inc.......................... 400 8,950
Urban Shopping Centers, Inc...................... 300 9,450
Weeks Corp....................................... 1,000 31,625
-----------
395,822
-----------
TOTAL FINANCE.................................. 1,363,211
-----------

HEALTHCARE (10.9%)
BIOTECHNOLOGY (3.1%)
Affymetrix, Inc.+................................ 200 4,825
Applied Analytical Industries, Inc.+............. 1,400 20,213
ArQule, Inc.+.................................... 300 3,891
Genome Therapeutics Corp.+....................... 1,000 4,484
Human Genome Sciences, Inc.+..................... 1,200 42,863
IDEC Pharmaceuticals Corp.+...................... 600 14,063
Incyte Pharmaceuticals, Inc.+.................... 1,000 34,188
Millennium Pharmaceuticals, Inc.+................ 400 5,675
Novoste Corp.+................................... 500 11,031
SangStat Medical Corp.+.......................... 1,300 40,869
-----------
182,102
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

HEALTH SERVICES (3.7%)
Alternative Living Services, Inc.+............... 760 $ 20,520
Boron, LePore & Associates, Inc.+................ 200 7,588
Lifeline Systems, Inc.+.......................... 800 15,000
Mariner Health Group, Inc.+...................... 2,400 39,975
Monarch Dental Corp.+............................ 500 7,875
Pediatrix Medical Group, Inc.+................... 400 14,875
ProMedCo Management Co.+......................... 1,100 11,138
Renal Care Group, Inc.+.......................... 400 17,650
Sierra Health Services, Inc.+.................... 2,700 68,006
Sunrise Assisted Living, Inc.+................... 300 10,322
-----------
212,949
-----------

MEDICAL SUPPLIES (3.4%)
Aurora Biosciences Corp.+........................ 500 2,969
CONMED Corp.+.................................... 400 9,250
Endocardial Solutions, Inc.+..................... 400 4,250
Focal, Inc.+..................................... 500 4,969
Kensey Nash Corp.+............................... 2,400 22,650
Physio-Control International Corp.+.............. 300 7,903
ResMed, Inc.+.................................... 300 13,659
Sola International, Inc.+........................ 1,000 32,688
Symphonix Devices, Inc.+......................... 200 2,369
Ventana Medical Systems, Inc.+................... 3,300 92,606
Vital Signs, Inc................................. 300 5,466
-----------
198,779
-----------

PHARMACEUTICALS (0.7%)
Kos Pharmaceuticals, Inc.+....................... 1,100 11,206
Ligand Pharmaceuticals, Class B+................. 1,900 24,284
U.S. Bioscience, Inc.+........................... 600 4,913
-----------
40,403
-----------
TOTAL HEALTHCARE............................... 634,233
-----------

INDUSTRIAL PRODUCTS & SERVICES (11.7%)
BUILDING MATERIALS (0.7%)
Comfort Systems USA, Inc.+....................... 500 11,688
Service Experts, Inc.+........................... 800 27,600
-----------
39,288
-----------

CAPITAL GOODS (4.1%)
ABC Rail Products Corp.+......................... 300 5,213
Applied Power, Inc., Class A..................... 1,000 34,375
Collins & Aikman Corp.+.......................... 1,200 8,925
</TABLE>

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

42
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
CAPITAL GOODS (CONTINUED)
IDEX Corp........................................ 950 $ 32,775
MagneTek, Inc.+.................................. 3,200 50,400
Modine Manufacturing Co.......................... 800 27,725
Shaw Group, Inc.+................................ 1,000 26,000
Wabash National Corp............................. 2,100 54,075
-----------
239,488
-----------

COMMERCIAL SERVICES (0.6%)
Equity Corp. International+...................... 500 12,000
Hospitality Worldwide Services+.................. 100 900
Pinkertons, Inc.+................................ 600 12,450
Wackenhut Corrections Corp.+..................... 300 7,013
-----------
32,363
-----------

CONSTRUCTION & HOUSING (2.5%)
D.R. Horton, Inc................................. 6,854 143,077
-----------

DIVERSIFIED MANUFACTURING (1.6%)
Intermet Corp.................................... 5,100 92,756
-----------

ELECTRICAL EQUIPMENT (0.5%)
Anixter International, Inc.+..................... 1,600 30,500
-----------

MACHINERY (0.2%)
Sauer, Inc....................................... 1,000 14,063
-----------
MANUFACTURING (0.1%)
Rock of Ages Corp.+.............................. 300 4,669
-----------

PACKAGING & CONTAINERS (0.4%)
Gaylord Container Corp., Class A+................ 2,000 15,375
Ivex Packaging Corp.+............................ 400 9,300
-----------
24,675
-----------

POLLUTION CONTROL (1.0%)
American Disposal Services, Inc.+................ 500 23,453
Sevenson Environmental Services, Inc............. 660 5,610
Tetra Technologies, Inc.+........................ 1,700 28,050
-----------
57,113
-----------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 677,992
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

TECHNOLOGY (13.4%)
AEROSPACE (1.2%)
L-3 Communications Holdings, Inc.+............... 100 $ 3,269
Orbital Sciences Corp.+.......................... 1,750 65,461
-----------
68,730
-----------

COMPUTER PERIPHERALS (1.2%)
Bolder Technologies Corp.+....................... 400 5,025
HMT Technology Corp.+............................ 2,400 20,025
Hutchinson Technology, Inc.+..................... 400 11,000
Pinnacle Systems, Inc.+.......................... 800 25,700
Proxim, Inc.+.................................... 500 8,344
-----------
70,094
-----------

COMPUTER SOFTWARE (3.5%)
Aspect Development, Inc.+........................ 300 22,669
Aspen Technologies, Inc.+........................ 600 30,413
Edify Corp.+..................................... 2,000 20,250
Informix Corp.+.................................. 1,600 12,625
Integrated Systems, Inc.+........................ 500 7,656
Macromedia, Inc.+................................ 1,500 28,078
MAPICS, Inc.+.................................... 1,400 27,606
Omtool, Ltd.+.................................... 400 3,038
Remedy Corp.+.................................... 1,000 17,031
Transaction Systems Architects, Inc., Class A+... 900 34,678
-----------
204,044
-----------

COMPUTER SYSTEMS (0.7%)
Avid Technology, Inc.+........................... 500 16,766
Quickturn Design System, Inc.+................... 1,300 9,547
Radiant Systems, Inc.+........................... 1,100 16,156
-----------
42,469
-----------

ELECTRICAL EQUIPMENT (0.0%)
Advanced Lighting Technologies, Inc.+............ 100 2,338
-----------

INFORMATION PROCESSING (3.1%)
CNET, Inc.+...................................... 300 20,531
Computer Horizons Corp.+......................... 100 3,709
Condor Technology Solutions, Inc.+............... 1,600 23,300
CSG Systems International, Inc.+................. 400 18,725
Exodus Communications, Inc.+..................... 100 4,469
International Network Services+.................. 900 36,647
</TABLE>

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

43
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
INFORMATION PROCESSING (CONTINUED)
Metro Information Services, Inc.+................ 600 $ 23,438
ONSALE, Inc.+.................................... 500 12,328
Pegasus Systems, Inc.+........................... 600 15,338
Sapient Corp.+................................... 400 21,025
-----------
179,510
-----------

SEMICONDUCTORS (2.0%)
8 x 8, Inc.+..................................... 1,400 6,869
American Xtal Technology, Inc.+.................. 300 4,369
ARM Holdings plc (Spons. ADR)+(i)................ 100 6,069
ATMI, Inc.+...................................... 1,100 16,569
Exar Corp.+...................................... 500 10,469
Genesis Microchip, Inc.+......................... 100 794
Integrated Device Technology, Inc.+.............. 2,500 17,852
Integrated Silicon Solution, Inc.+............... 900 6,272
SDL, Inc.+....................................... 1,100 26,400
SIPEX Corp.+..................................... 500 10,734
Veeco Instruments, Inc........................... 300 7,463
-----------
113,860
-----------
TELECOMMUNICATIONS-EQUIPMENT (1.7%)
ANTEC Corp.+..................................... 600 13,969
Davox Corp.+..................................... 800 17,450
Excel Switching Corp.+........................... 1,000 24,938
Glenayre Technologies, Inc.+..................... 1,900 20,544
Natural Microsystems Corp.+...................... 500 8,047
P-COM, Inc.+..................................... 1,100 10,089
Verio, Inc.+..................................... 100 2,494
-----------
97,531
-----------
TOTAL TECHNOLOGY............................... 778,576
-----------

TELECOMMUNICATIONS (2.3%)
TELECOMMUNICATION SERVICES (2.3%)
Concentric Network Corp.+........................ 1,500 45,422
MetroNet Communications Corp., Class B+.......... 800 22,500
Omnipoint Corp.+................................. 1,200 27,563
Premiere Technologies, Inc.+..................... 1,000 8,297
SkyTel Communications, Inc....................... 1,300 30,469
-----------
134,251
-----------
TOTAL TELECOMMUNICATIONS....................... 134,251
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

TRANSPORTATION (1.8%)
AIRLINES (0.3%)
ASA Holdings, Inc................................ 400 $ 19,875
-----------

RAILROADS (0.4%)
Genesee & Wyoming Inc., Class A+................. 1,100 21,038
-----------

TRUCK & FREIGHT CARRIERS (1.1%)
Allied Holdings, Inc.+........................... 800 16,850
American Freightways Corp.+...................... 1,000 10,031
Jevic Transportation, Inc.+...................... 100 1,119
Werner Enterprises, Inc.......................... 1,975 37,648
-----------
65,648
-----------
TOTAL TRANSPORTATION........................... 106,561
-----------

UTILITIES (5.6%)
ELECTRIC (2.1%)
Central Hudson Gas & Electric Corp............... 1,500 68,813
Cleco Corporation................................ 1,700 50,575
-----------
119,388
-----------

NATURAL GAS (2.3%)
Atmos Energy Corp................................ 1,600 48,800
Indiana Energy, Inc.............................. 500 14,938
Public Service Company of North Carolina, Inc.... 300 6,525
Wicor, Inc....................................... 2,700 62,438
-----------
132,701
-----------

TELEPHONE (0.7%)
ICG Communications, Inc.+........................ 200 7,306
Intermedia Communications, Inc.+................. 600 25,144
ITC DeltaCom, Inc.+.............................. 100 4,272
NEXTLINK Communications, Inc., Class A+.......... 100 3,784
-----------
40,506
-----------
</TABLE>

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

44
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
WATER (0.5%)
American States Water Company.................... 400 $ 10,850
E'Town Corp...................................... 500 18,750
-----------
29,600
-----------
TOTAL UTILITIES................................ 322,195
-----------
TOTAL COMMON STOCKS (COST $4,744,336).......... 5,577,711
-----------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.8%)
OTHER INVESTMENT COMPANIES (1.2%)
Seven Seas Money Market Fund
5.30% due 07/01/98............................. $ 67,172 67,172
-----------

U.S. TREASURY OBLIGATIONS (4.6%)
U.S. Treasury Bills, 4.55% - 4.84% due 07/09/98 -
07/23/98....................................... 269,000 268,549
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $335,721)............................... 335,721
-----------
TOTAL INVESTMENTS (COST $5,080,057) (101.7%)..................
5,913,432
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.7%).................
(100,252)
-----------
NET ASSETS (100.0%)........................................... $ 5,813,180
-----------
-----------
</TABLE>

- ------------------------------
Note: Based on the cost of investments of $5,086,607 for federal income tax
purposes at June 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $1,162,837 and $336,012, respectively, resulting in net
unrealized appreciation of $826,825.

+ Non-income producing security.

(i) Foreign security.

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

45
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
COMMON STOCK (89.3%)
ARGENTINA (0.7%)
YPF Sociedad Anonima (Spon. ADR)
(Oil-Production)............................... 2,010 $ 60,426
-----------

AUSTRALIA (2.8%)
News Corporation Ltd. (Broadcasting &
Publishing).................................... 6,600 53,867
Pioneer International Ltd. (Building
Materials)..................................... 18,300 43,629
QBE Insurance Group Ltd. (Insurance)............. 19,000 67,065
Telstra Corp. Ltd. (Installment Receipts)
(Telecommunication Services)................... 5,100 13,075
Westpac Banking Corp. Ltd. (Banking)............. 12,528 76,416
-----------
254,052
-----------
BELGIUM (0.4%)
PetroFina SA (Oil-Production).................... 100 41,051
-----------

BRAZIL (0.5%)
Companhia Paranaense de Energia - Copel
(Electric)..................................... 1,400,000 11,015
Companhia Paranaense de Energia - Copel (Spon.
ADR) (Electric)................................ 3,300 30,525
-----------
41,540
-----------

CHILE (0.0%)
Compania de Telecomunicaciones de Chile SA (Spon.
ADR) (Telecommunication Services).............. 63 1,280
-----------

CZECH REPUBLIC (0.5%)
Central European Media Enterprises Ltd., A Shares
(Entertainment, Leisure & Media)+.............. 2,300 49,666
-----------

<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

DENMARK (2.4%)
Danisco A/S (Food, Beverages & Tobacco).......... 750 $ 50,385
GN Store Nord A/S
(Telecommunications-Equipment)................. 3,500 106,878
Olicom A/S (Technology)+......................... 2,300 62,207
-----------
219,470
-----------

FINLAND (1.5%)
Nokia OYJ, A Shares
(Telecommunications-Equipment)................. 600 44,127
Orion - Yhtyma OY, A Shares (Pharmaceuticals).... 1,000 30,438
Orion - Yhtyma OY, B Shares (Pharmaceuticals).... 500 15,402
UPM-Kymmene Corp. (Forest Products & Paper)...... 1,900 52,292
-----------
142,259
-----------

FRANCE (14.9%)
Air Liquide SA (Chemicals)....................... 418 69,136
Carrefour SA (Retail)............................ 116 73,387
Christian Dior SA (Retail)....................... 700 88,107
Compagnie de Saint Gobain SA (Building
Materials)..................................... 185 34,301
Elf Aquitaine SA (Oil-Services).................. 778 109,378
Lagardere S.C.A. (Multi - Industry).............. 1,010 42,047
Paribas (Financial Services)..................... 1,000 107,012
PSA Peugeot Citroen (Automotive)................. 300 64,505
Rhodia, Inc. (Chemicals)......................... 4,994 139,263
Sanofi SA (Pharmaceuticals)...................... 540 63,503
SGS Thomson Microelectronics NV (Electronics)+... 763 54,076
Societe Generale (Banking)....................... 694 144,286
Total SA, B Shares (Oil-Services)................ 849 110,372
Union des Assurances Federales (Insurance)....... 345 54,380
Vivendi (Utilities).............................. 1,024 218,653
-----------
1,372,406
-----------

GERMANY (11.2%)
Adidas - Salomon AG (Apparels & Textiles)........ 500 87,118
Bayer AG (Chemicals)............................. 800 41,395
Deutsche Bank AG (Banking)....................... 1,700 143,720
</TABLE>

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

46
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
GERMANY (CONTINUED)
Dresdner Bank AG (Banking)....................... 2,530 $ 136,660
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance).................................... 292 144,946
RWE AG (Utilities)............................... 2,580 152,653
SAP AG (Computer Software)....................... 90 54,597
Schering AG (Pharmaceuticals).................... 703 82,762
SGL Carbon AG (Chemicals)........................ 496 57,760
VEBA AG (Utilities).............................. 1,910 128,407
-----------
1,030,018
-----------

GREECE (0.0%)
Hellenic Telecommunication Organization SA-OTE
(Telecommunications)........................... 57 1,461
-----------

HONG KONG (2.1%)
Dao Heng Bank Group Ltd. (Banking)............... 44,500 63,173
Henderson Land Development Company Ltd. (Real
Estate)........................................ 35,000 115,408
Hutchison Whampoa Ltd. (Multi - Industry)........ 3,000 15,835
-----------
194,416
-----------

INDIA (0.2%)
Ranbaxy Laboratories Ltd. (GDR)
(Pharmaceuticals).............................. 900 14,265
Tata Engineering & Locomotive Co. Ltd. (Spon.
GDR) (Automotive)+............................. 100 293
-----------
14,558
-----------
ITALY (0.9%)
Telecom Italia SPA - RNC (Telecommunication
Services)...................................... 16,700 80,844
-----------

JAPAN (11.8%)
Bank of Fukuoka Ltd. (Banking)................... 20,000 74,936
DDI Corp. (Telecommunications)................... 30 104,406
Fanuc Ltd. (Machinery)........................... 2,000 69,172
Fuji Photo Film Co. Ltd. (Electronics)........... 1,000 34,802
Fujitsu Ltd. (Computer Systems).................. 7,000 73,639
Honda Motor Co. Ltd. (Automotive)................ 2,000 71,189
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
JAPAN (CONTINUED)
Ito - Yokado Co. Ltd. (Retail)................... 1,000 $ 47,051
Mitsubishi Corp. (Wholesale & International
Trade)......................................... 19,000 117,736
Mitsui Trust & Banking Co. Ltd. (Banking)........ 18,000 42,411
Nintendo Co. Ltd. (Retail)....................... 200 18,518
Sanwa Bank Ltd. (Banking)........................ 1,000 8,942
Sekisui Chemical Co. Ltd. (Chemicals)............ 10,000 51,158
Sony Corp. (Electronics)......................... 1,100 94,715
Tadano Ltd. (Machinery).......................... 4,000 11,529
Takeda Chemical Industries Ltd. (Chemicals)...... 3,000 79,764
Tokyo Ohka Kogyo Co. Ltd. (Semiconductors)....... 1,900 53,940
Tostem Corp. (Construction & Housing)............ 4,000 51,821
Yamanouchi Pharmaceutical Co. Ltd.
(Pharmaceuticals).............................. 4,000 83,294
-----------
1,089,023
-----------

MEXICO (1.4%)
Cemex SA de CV (Building Materials).............. 216 811
Grupo Financiero Banamex Accival SA de CV, Class
B (Banking)+................................... 41,000 79,846
Panamerican Beverages, Inc. (ADR) (Food,
Beverages & Tobacco)........................... 400 12,575
Telefonos de Mexico SA de CV, Class L (Spon. ADR)
(Telecommunications)........................... 821 39,459
-----------
132,691
-----------

NETHERLANDS (5.0%)
ASM Lithography Holding NV (Semiconductors)+..... 2,100 62,147
De Boer Unigro NV (Retail)....................... 500 26,423
ING Groep NV (Financial Services)................ 1,800 117,863
Philips Electronics NV (Electronics)............. 1,290 108,440
Unilever NV (Food, Beverages & Tobacco).......... 320 25,390
Vedior NV (Business & Public Services)........... 1,382 39,051
</TABLE>

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

47
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
NETHERLANDS (CONTINUED)
Vendex International NV (Retail)................. 1,400 $ 52,649
Wolters Kluwer NV (Broadcasting & Publishing).... 200 27,450
-----------
459,413
-----------

NEW ZEALAND (0.4%)
Fletcher Challenge Paper Division Ltd. (Forest
Products & Paper).............................. 34,300 38,102
-----------

NORWAY (0.8%)
Kvaerner PLC (Capital Goods)..................... 1,570 53,196
Kvaerner PLC, Series B (Capital Goods)........... 800 24,708
-----------
77,904
-----------
PAKISTAN (0.1%)
Fauji Fertilizer Co. Ltd. (Chemicals)............ 4,700 5,072
-----------

PERU (0.0%)
Cementos Lima SA (Spon. ADR) (Building
Materials)..................................... 64 1,184
-----------

PHILIPPINES (0.2%)
First Philippine Holdings Corp., Class B (Multi -
Industry)...................................... 5,400 3,626
Philippine Long Distance Telephone Co. (ADR)
(Telecommunications)........................... 695 15,724
-----------
19,350
-----------

POLAND (0.3%)
Elektrim Spolka Akcjna SA (Electrical
Equipment)+.................................... 2,060 25,107
-----------

PORTUGAL (1.5%)
Banco Pinto & Sotto Mayor (Banking)+............. 2,624 65,131
Portugal Telecom SA (Telecommunications)......... 1,300 68,899
-----------
134,030
-----------

RUSSIA (0.2%)
Lukoil Holding (Spon. ADR) (Oil-Production)...... 550 18,425
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

SOUTH AFRICA (1.9%)
ABSA Group Ltd. (Banking)........................ 6,200 $ 38,947
Anglogold Ltd. (Metals & Mining)+................ 1,503 60,987
Eastvaal Gold Holdings Ltd. (Metals & Mining)+... 3,700 3,392
Edgars Stores Ltd. (Retail)...................... 2,500 22,283
South Africa Breweries Ltd. (Food, Beverages &
Tobacco)....................................... 2,300 47,640
-----------
173,249
-----------

SOUTH KOREA (0.2%)
Housing & Commercial Bank, Korea (GDR)
(Banking)...................................... 950 3,111
Pohang Iron & Steel Co. Ltd. (ADR) (Metals &
Mining)........................................ 1,000 12,000
Samsung Electronics Co. Ltd. (GDR)(144A)
(Electronics).................................. 98 1,556
-----------
16,667
-----------

SPAIN (2.4%)
Acerinox SA (Metals & Mining).................... 162 21,608
ACS, Actividades de Construccion y Servicios SA
(Construction & Housing)+...................... 1,800 54,145
Iberdrola SA (Electric).......................... 8,700 141,505
-----------
217,258
-----------

SWEDEN (4.0%)
Autoliv, Inc. (SDR) (Automotive Supplies)........ 4,254 136,022
Incentive AB, A Shares (Pharmaceuticals)+........ 2,000 36,364
Skandia Forsakrings AB (Insurance)+.............. 7,700 110,070
Stora Kopparbergs Bergslags Aktiebolag, A Shares
(Forest Products & Paper)...................... 5,300 83,405
-----------
365,861
-----------

SWITZERLAND (7.9%)
ABB AG (Machinery)............................... 42 62,025
Nestle SA (Food, Beverages & Tobacco)............ 80 171,201
Roche Holding AG (Pharmaceuticals)............... 12 117,839
</TABLE>

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

48
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
SWITZERLAND (CONTINUED)
UBS AG (Banking)................................. 670 $ 249,128
Zurich Versicherungs - Gesellschaft
(Insurance).................................... 200 127,636
-----------
727,829
-----------

TAIWAN (0.3%)
Evergreen Marine Corp. (Spon. GDR) (Transport &
Services)...................................... 3,605 29,561
-----------

TURKEY (0.1%)
Yapi ve Kredi Bankasi AS (Banking)+.............. 531,670 13,571
-----------

UNITED KINGDOM (12.7%)
Billiton PLC (Metals & Mining)................... 19,100 38,720
British Petroleum Co. PLC (Oil-Services)......... 8 117
Cable & Wireless PLC (Telecommunications)........ 5,400 65,592
Lloyds TSB Group PLC (Banking)................... 9,200 128,711
LucasVarity PLC (Automotive Supplies)............ 17,700 70,287
Shell Transport & Trading Co. (Oil-Services)..... 15,400 108,432
Smith & Nephew PLC (Medical Supplies)............ 28,600 71,459
SmithKline Beecham PLC (Pharmaceuticals)......... 8,500 103,743
Stolt - Nielsen SA (Spon. ADR)
(Transportation)............................... 2,441 41,955
Sun Alliance Group PLC (Insurance)............... 9,200 95,094
Tate & Lyle PLC (Food, Beverages & Tobacco)...... 9,800 77,710
Unilever PLC (Food, Beverages & Tobacco)......... 7,900 84,096
Vodafone Group PLC (Telecommunications).......... 6,500 82,478
Wessex Water PLC (Water)......................... 16,300 124,016
Zeneca Group PLC (Pharmaceuticals)............... 1,820 78,103
-----------
1,170,513
-----------
TOTAL COMMON STOCK (COST $7,969,789)........... 8,218,257
-----------
</TABLE>

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------

CONVERTIBLE PREFERRED STOCK (0.3%)
<S> <C> <C>
AUSTRALIA (0.3%)
WBK STRYPES Trust (Banking) (cost $25,080)....... 800 $ 24,150
-----------
</TABLE>

<TABLE>
<S> <C> <C>
PREFERRED STOCK (4.0%)
AUSTRALIA (1.1%)
News Corp. Ltd. (Broadcasting & Publishing)...... 14,600 103,429
-----------

BRAZIL (2.3%)
Companhia Brasileira de Distribuicao Grupo Pao de
Acucar (Spon. ADR) (Food, Beverages &
Tobacco)....................................... 1,500 33,938
Telecomunicacoes Brasileiras SA (ADR)
(Telecommunications)........................... 850 92,809
Uniao de Bancos Brasileiros SA (Spon. GDR)
(Banking)...................................... 2,900 85,550
-----------
212,297
-----------

GERMANY (0.6%)
Volkswagen AG (Automotive)....................... 78 53,756
-----------
TOTAL PREFERRED STOCK (COST $346,220).......... 369,482
-----------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
CONVERTIBLE BONDS (1.7%)
(IN HKD)
-----------
HONG KONG (0.5%)
Beijing Enterprises Holdings Ltd. (144A), 0.50%
due 03/31/03 (Food, Beverages & Tobacco)+...... 51,000 41,565
-----------
(IN JPY)
-----------

JAPAN (0.4%)
MTI Capital (Cayman) Ltd. (144A), 0.50% due
10/01/07 (Banking)............................. 3,000,000 17,293
Sanwa International Finance Trust, 1.25% due
07/31/05 (Financial Services).................. 3,000,000 22,103
-----------
39,396
-----------
</TABLE>

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

49
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
(IN GBP)
-----------

UNITED KINGDOM (0.8%)
Compass Group PLC, 5.75% due 10/05/07 (Food,
Beverages & Tobacco)........................... 25,000 $ 74,352
-----------
TOTAL CONVERTIBLE BONDS (COST $154,984)........ 155,313
-----------
SHORT-TERM INVESTMENTS (1.3%)
OTHER INVESTMENT COMPANIES (1.3%)
(IN USD)
-----------
Seven Seas Money Market Fund
5.30% due 07/01/98 (cost $119,476)............. 119,476 119,476
-----------
TOTAL INVESTMENTS (COST $8,615,549) (96.6%)...................
8,886,678
OTHER ASSETS IN EXCESS OF LIABILITIES (3.4%)..................
315,130
-----------
NET ASSETS (100.0%)........................................... $ 9,201,808
-----------
-----------
</TABLE>

- ------------------------------
Note: The cost of investments for federal income tax purposes at June 30, 1998,
was $8,622,399; the aggregate gross unrealized appreciation and depreciation was
$807,105 and $542, 826, respectively, resulting in net unrealized appreciation
of $264,279.

+ Non-income producing security.

ADR - American Depositary Receipt

Spon. ADR - Sponsored ADR

GDR - Global Depositary Receipt

Spon. GDR - Sponsored GDR

SDR - Swedish Depositary Receipt

144A - Securities restricted for resale to Qualified Institutional Buyers

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

50
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY DIVERSIFICATION
PERCENT OF
PORTFOLIO
-----------
<S> <C>
Banking......................................................................... 15.71%
Pharmaceuticals................................................................. 7.04%
Food, Beverages & Tobacco....................................................... 6.96%
Insurance....................................................................... 6.74%
Utilities....................................................................... 5.62%
Telecommunications.............................................................. 5.30%
Computer Systems................................................................ 5.00%
Retail.......................................................................... 3.70%
Oil Services.................................................................... 3.69%
Electronics..................................................................... 3.30%
Financial Services.............................................................. 2.78%
Automotive Supplies............................................................. 2.32%
Automotive...................................................................... 2.14%
Broadcasting & Publishing....................................................... 2.08%
Electric........................................................................ 2.06%
Forest Products & Paper......................................................... 1.96%
Telecommunication Equipment..................................................... 1.70%
Machinery....................................................................... 1.61%
Metals & Mining................................................................. 1.54%
Water........................................................................... 1.40%
Oil Production.................................................................. 1.35%
Short Term Investments.......................................................... 1.34%
Wholesale & International Trade................................................. 1.32%
Semiconductors.................................................................. 1.31%
Real Estate..................................................................... 1.30%
Construction & Housing.......................................................... 1.19%
Telecommunication Services...................................................... 1.07%
Apparels & Textile.............................................................. 0.98%
Building Materials.............................................................. 0.90%
Capital Goods................................................................... 0.88%
Electronics..................................................................... 0.83%
Medical Supplies................................................................ 0.80%
Technology...................................................................... 0.70%
Multi-Industry.................................................................. 0.69%
Computer Software............................................................... 0.61%
Entertainment, Leisure & Media.................................................. 0.56%
Transportation.................................................................. 0.47%
Business & Public Services...................................................... 0.44%
Transport & Services............................................................ 0.33%
Electrical Equipment............................................................ 0.28%
-----------
100.00%
-----------
-----------
</TABLE>

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

51
<PAGE>
J.P. MORGAN SERIES TRUST II
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
J.P. MORGAN J.P. MORGAN J.P. MORGAN
TREASURY J.P. MORGAN J.P. MORGAN SMALL INTERNATIONAL
MONEY MARKET BOND EQUITY COMPANY OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 1,652,890 $19,753,995 $12,015,086 $5,080,057 $ 8,615,549
Foreign Currency, at Cost -- 11,873 -- -- 599,266
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
Investments, at Value $ 1,652,925 $19,926,766 $13,259,636 $5,913,432 $ 8,886,678
Cash -- -- 1,195 -- 36,664
Foreign Currency at Value -- 11,894 -- -- 589,244
Receivable for Investments Sold -- 179,831 124,028 41,204 170,197
Receivable for Shares of Beneficial Interest Sold -- 32,316 73,835 17,886 13,106
Dividends Receivable -- -- 10,593 5,158 16,240
Interest Receivable 564 199,462 50 181 1,770
Foreign Tax Reclaim Receivable -- -- -- -- 23,849
Receivable for Expense Reimbursement 7,891 10,259 8,187 20,418 26,109
Variation Margin Receivable -- 4,125 -- -- --
Unrealized Appreciation of Forward Foreign
Currency Contracts -- 38,524 -- -- 41,096
Deferred Organization Expenses 2,977 2,977 2,977 2,977 2,977
Prepaid Trustees' Fees 1,152 14,126 8,173 3,128 6,667
Prepaid Expenses and Other Assets 614 1,651 3,570 2,175 7,336
------------ ----------- ----------- ----------- -------------
Total Assets 1,666,123 20,421,931 13,492,244 6,006,559 9,821,933
------------ ----------- ----------- ----------- -------------
LIABILITIES
Payable for Investments Purchased -- 763,260 445,284 145,796 542,503
Payable for Shares of Beneficial Interest
Redeemed 8 3,986 1,469 1,150 129
Payable to Custodian -- 2,582 -- -- --
Advisory Fee Payable 272 4,576 4,170 2,799 4,458
Custody Fee Payable 1,543 3,427 7,971 18,724 31,232
Administration Fee Payable 19 21 20 6 3
Unrealized Depreciation of Forward Foreign
Currency Contracts -- 32 -- -- 7,578
Accrued Expenses 13,621 28,521 44,115 24,904 34,222
------------ ----------- ----------- ----------- -------------
Total Liabilities 15,463 806,405 503,029 193,379 620,125
------------ ----------- ----------- ----------- -------------
NET ASSETS $ 1,650,660 $19,615,526 $12,989,215 $5,813,180 $ 9,201,808
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
Shares of Beneficial Interest Outstanding (no par
value, unlimited shares authorized) 177,489 1,679,992 798,576 430,124 842,538
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
Net Asset Value, Offering and Redemption Price
per Share $ 9.30 $ 11.68 $ 16.27 $ 13.52 $ 10.92
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
ANALYSIS OF NET ASSETS
Paid-in Capital $ 1,613,937 $18,764,838 $10,657,694 $4,739,783 $ 9,028,501
Undistributed (Distributions in Excess of) Net
Investment Income 36,691 483,645 32,841 5,276 (43,224)
Accumulated Net Realized Gain (Loss) on
Investments and Foreign Currency Contracts and
Transactions (3) 155,712 1,054,130 234,746 (81,573)
Net Unrealized Appreciation of Investments and
Foreign Currency Contracts and Translations 35 211,331 1,244,550 833,375 298,104
------------ ----------- ----------- ----------- -------------
Net Assets $ 1,650,660 $19,615,526 $12,989,215 $5,813,180 $ 9,201,808
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
</TABLE>

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

52
<PAGE>
J.P. MORGAN SERIES TRUST II
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------

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

53
<PAGE>
J.P. MORGAN SERIES TRUST II
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
J.P. MORGAN J.P. MORGAN
TREASURY MONEY MARKET BOND
PORTFOLIO PORTFOLIO
-------------------------------- --------------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, FOR THE FISCAL JUNE 30, FOR THE FISCAL
1998 YEAR ENDED 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997
------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 36,691 $ 296,248 $ 483,645 $ 405,628
Net Realized Gain (Loss) on Investments,
Futures and Foreign Currency Contracts
and Transactions (3) 98 155,898 89,282
Net Change in Unrealized Appreciation
(Depreciation) of Investments and
Foreign Currency Contracts and
Translations 43 (225) 13,068 156,748
------------ ----------------- ------------ -----------------
Net Increase in Net Assets Resulting
from Operations 36,731 296,121 652,611 651,658
------------ ----------------- ------------ -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (227,554) (68,567) (35,503) (371,448)
In Excess of Net Investment Income -- -- -- --
Net Realized Gain -- (227) (32,931) (76,188)
------------ ----------------- ------------ -----------------
Total Distributions to Shareholders (227,554) (68,794) (68,434) (447,636)
------------ ----------------- ------------ -----------------
SHAREHOLDER TRANSACTIONS
Proceeds from Shares of Beneficial
Interest Sold 5,013 235,434,828 8,464,054 13,586,133
Reinvestment of Dividends and
Distributions 227,554 129,447 68,434 570,510
Cost of Shares of Beneficial Interest
Redeemed (8,319) (235,560,885) (5,400,264) (1,243,619)
------------ ----------------- ------------ -----------------
Net Increase from Shareholder
Transactions 224,248 3,390 3,132,224 12,913,024
------------ ----------------- ------------ -----------------
Total Increase in Net Assets 33,425 230,717 3,716,401 13,117,046
NET ASSETS
Beginning of Period 1,617,235 1,386,518 15,899,125 2,782,079
------------ ----------------- ------------ -----------------
End of Period $ 1,650,660 $ 1,617,235 $19,615,526 $ 15,899,125
------------ ----------------- ------------ -----------------
------------ ----------------- ------------ -----------------
Undistributed (Distributions in Excess
of) Net Investment Income $ 36,691 $ 227,554 $ 483,645 $ 35,503
------------ ----------------- ------------ -----------------
------------ ----------------- ------------ -----------------
</TABLE>

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

54
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
J.P. MORGAN
J.P. MORGAN J.P. MORGAN INTERNATIONAL
EQUITY SMALL COMPANY OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------- -------------------------------- ------------
FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, FOR THE FISCAL JUNE 30, FOR THE FISCAL JUNE 30,
1998 YEAR ENDED 1998 YEAR ENDED 1998
(UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED)
------------ ----------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 32,841 $ 57,487 $ 3,316 $ 13,566 $ 37,656
Net Realized Gain (Loss) on Investments,
Futures and Foreign Currency Contracts
and Transactions 1,065,830 1,503,440 250,230 552,703 421,819
Net Change in Unrealized Appreciation
(Depreciation) of Investments and
Foreign Currency Contracts and
Translations 273,631 217,774 7,123 468,721 95,009
------------ ----------------- ------------ ----------------- ------------
Net Increase in Net Assets Resulting
from Operations 1,372,302 1,778,701 260,669 1,034,990 554,484
------------ ----------------- ------------ ----------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (499) (56,988) -- (12,562) (50,650)
In Excess of Net Investment Income -- -- -- -- (43,224)
Net Realized Gain (109,119) (1,467,377) (90,198) (697,437) (318,085)
------------ ----------------- ------------ ----------------- ------------
Total Distributions to Shareholders (109,618) (1,524,365) (90,198) (709,999) (411,959)
------------ ----------------- ------------ ----------------- ------------
SHAREHOLDER TRANSACTIONS
Proceeds from Shares of Beneficial
Interest Sold 3,008,118 1,347,586 1,207,157 681,496 2,172,105
Reinvestment of Dividends and
Distributions 109,618 2,071,106 90,198 1,128,681 411,959
Cost of Shares of Beneficial Interest
Redeemed (283,517) (119,999) (850,491) (806,325) (304,682)
------------ ----------------- ------------ ----------------- ------------
Net Increase from Shareholder
Transactions 2,834,219 3,298,693 446,864 1,003,852 2,279,382
------------ ----------------- ------------ ----------------- ------------
Total Increase in Net Assets 4,096,903 3,553,029 617,335 1,328,843 2,421,907
NET ASSETS
Beginning of Period 8,892,312 5,339,283 5,195,845 3,867,002 6,779,901
------------ ----------------- ------------ ----------------- ------------
End of Period $12,989,215 $ 8,892,312 $ 5,813,180 $ 5,195,845 $ 9,201,808
------------ ----------------- ------------ ----------------- ------------
------------ ----------------- ------------ ----------------- ------------
Undistributed (Distributions in Excess
of) Net Investment Income $ 32,841 $ 499 $ 5,276 $ 1,960 $ (43,224)
------------ ----------------- ------------ ----------------- ------------
------------ ----------------- ------------ ----------------- ------------

FOR THE FISCAL
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 59,735
Net Realized Gain (Loss) on Investments,
Futures and Foreign Currency Contracts
and Transactions 628,587
Net Change in Unrealized Appreciation
(Depreciation) of Investments and
Foreign Currency Contracts and
Translations (347,165)
-----------------
Net Increase in Net Assets Resulting
from Operations 341,157
-----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (230,309)
In Excess of Net Investment Income --
Net Realized Gain (727,719)
-----------------
Total Distributions to Shareholders (958,028)
-----------------
SHAREHOLDER TRANSACTIONS
Proceeds from Shares of Beneficial
Interest Sold 1,080,068
Reinvestment of Dividends and
Distributions 1,255,869
Cost of Shares of Beneficial Interest
Redeemed (1,189,091)
-----------------
Net Increase from Shareholder
Transactions 1,146,846
-----------------
Total Increase in Net Assets 529,975
NET ASSETS
Beginning of Period 6,249,926
-----------------
End of Period $ 6,779,901
-----------------
-----------------
Undistributed (Distributions in Excess
of) Net Investment Income $ 12,994
-----------------
-----------------
</TABLE>

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

55
<PAGE>
J.P. MORGAN SERIES TRUST II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:

<TABLE>
<CAPTION>
J.P. MORGAN
TREASURY MONEY MARKET PORTFOLIO
--------------------------------------------------------
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 3, 1995
SIX MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
JUNE 30, 1998 --------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 DECEMBER 31, 1995
---------------- ------ ------ -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.56 $10.09 $10.06 $ 10.00
---------------- ------ ------ -------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.22 0.51(d) 0.44 0.45
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions (0.00)(a) (0.04)(d) 0.03 0.06
---------------- ------ ------ -------------------
Total from Investment Operations 0.22 0.47 0.47 0.51
---------------- ------ ------ -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1.48) (0.00)(a) (0.44) (0.45)
Net Realized Gain -- (0.00)(a) -- --
---------------- ------ ------ -------------------
Total Distributions to Shareholders (1.48) (0.00)(a) (0.44) (0.45)
---------------- ------ ------ -------------------

NET ASSET VALUE, END OF PERIOD $ 9.30 $10.56 $10.09 $ 10.06
---------------- ------ ------ -------------------
---------------- ------ ------ -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 2.23%(b) 4.69% 4.69% 5.09%(b)
Net Assets, End of Period (in thousands) $ 1,651 $1,617 $1,387 $ 1,273
Ratios to Average Net Assets
Expenses 0.60%(c) 0.60% 0.60% 0.60%(c)
Net Investment Income 4.53%(c) 7.23% 4.56% 4.95%(c)
Expenses without Reimbursement 2.45%(c) 1.35% 2.02% 2.77%(c)
</TABLE>

- ------------------------
(a) Less than $0.01.

(b) Not annualized.

(d) Based on Average Daily Shares Outstanding

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

56
<PAGE>
J.P. MORGAN SERIES TRUST II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:

<TABLE>
<CAPTION>
J.P. MORGAN
BOND PORTFOLIO
---------------------------------------------------------
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 3, 1995
SIX MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
JUNE 30, 1998 ---------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 DECEMBER 31, 1995
---------------- ------- ------ -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.29 $ 10.65 $10.91 $ 10.00
---------------- ------- ------ -------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.68(d) 0.47 0.58
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 0.15 0.31(d) (0.25) 1.11
---------------- ------- ------ -------------------
Total from Investment Operations 0.43 0.99 0.22 1.69
---------------- ------- ------ -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.02) (0.27) (0.47) (0.58)
Net Realized Gain (0.02) (0.08) (0.01) (0.20)
---------------- ------- ------ -------------------
Total Distributions to Shareholders (0.04) (0.35) (0.48) (0.78)
---------------- ------- ------ -------------------

NET ASSET VALUE, END OF PERIOD $ 11.68 $ 11.29 $10.65 $ 10.91
---------------- ------- ------ -------------------
---------------- ------- ------ -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 3.87%(b) 9.38% 2.09% 16.85%(b)
Net Assets, End of Period (in thousands) $ 19,616 $15,899 $2,782 $ 1,417
Ratios to Average Net Assets
Expenses 0.75%(c) 0.75% 0.75% 0.75%(c)
Net Investment Income 5.67%(c) 6.20% 5.91% 6.00%(c)
Expenses without Reimbursement 0.92%(c) 1.91% 2.18% 2.90%(c)
Portfolio Turnover 108% 184% 198% 239%
</TABLE>

- ------------------------
(b) Not annualized.

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

57
<PAGE>
J.P. MORGAN SERIES TRUST II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:

<TABLE>
<CAPTION>
J.P. MORGAN
EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 3, 1995
SIX MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
JUNE 30, 1998 --------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 DECEMBER 31, 1995
---------------- ------ ------ -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.33 $13.68 $12.63 $ 10.00
---------------- ------ ------ -------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.11 0.20 0.12
Net Realized and Unrealized Gain on Investments 2.07 3.51 2.44 3.26
---------------- ------ ------ -------------------
Total from Investment Operations 2.11 3.62 2.64 3.38
---------------- ------ ------ -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.00)(a) (0.11) (0.20) (0.12)
Net Realized Gain (0.17) (2.86) (1.39) (0.63)
---------------- ------ ------ -------------------
Total Distributions to Shareholders (0.17) (2.97) (1.59) (0.75)
---------------- ------ ------ -------------------

NET ASSET VALUE, END OF PERIOD $ 16.27 $14.33 $13.68 $ 12.63
---------------- ------ ------ -------------------
---------------- ------ ------ -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 14.75%(b) 27.50% 21.14% 33.91%(b)
Net Assets, End of Period (in thousands) $ 12,989 $8,892 $5,339 $ 4,144
Ratios to Average Net Assets
Expenses 0.90%(c) 0.90% 0.90% 0.90%(c)
Net Investment Income 0.63%(c) 0.75% 1.49% 1.48%(c)
Expenses without Reimbursement 1.55%(c) 2.31% 2.13% 2.70%(c)
Portfolio Turnover 44% 119% 90% 66%
</TABLE>

- ------------------------
(a) Less than $0.01.

(b) Not annualized.

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

58
<PAGE>
J.P. MORGAN SERIES TRUST II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:

<TABLE>
<CAPTION>
J.P. MORGAN
SMALL COMPANY PORTFOLIO
--------------------------------------------------------
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 3, 1995
SIX MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
JUNE 30, 1998 --------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 DECEMBER 31, 1995
---------------- ------ ------ -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.09 $12.53 $11.83 $ 10.00
---------------- ------ ------ -------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.01 0.04 0.06 0.11
Net Realized and Unrealized Gain on Investments 0.64 2.53 2.43 3.18
---------------- ------ ------ -------------------
Total from Investment Operations 0.65 2.57 2.49 3.29
---------------- ------ ------ -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income -- (0.04) (0.06) (0.11)
Net Realized Gain (0.22) (1.97) (1.73) (1.35)
---------------- ------ ------ -------------------
Total Distributions to Shareholders (0.22) (2.01) (1.79) (1.46)
---------------- ------ ------ -------------------

NET ASSET VALUE, END OF PERIOD $ 13.52 $13.09 $12.53 $ 11.83
---------------- ------ ------ -------------------
---------------- ------ ------ -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 4.90%(b) 22.50% 21.74% 32.91%(b)
Net Assets, End of Period (in thousands) $ 5,813 $5,196 $3,867 $ 2,536
Ratios to Average Net Assets
Expenses 1.15%(c) 1.15% 1.15% 1.15%(c)
Net Investment Income 0.12%(c) 0.28% 0.54% 0.99%(c)
Expenses without Reimbursement 3.14%(c) 3.81% 2.69% 3.22%(c)
Portfolio Turnover 27% 85% 144% 100%
</TABLE>

- ------------------------
(b) Not annualized.

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

59
<PAGE>
J.P. MORGAN SERIES TRUST II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:

<TABLE>
<CAPTION>
J.P. MORGAN
INTERNATIONAL OPPORTUNITIES PORTFOLIO
--------------------------------------------------------
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 3, 1995
SIX MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
JUNE 30, 1998 --------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 DECEMBER 31, 1995
---------------- ------ ------ -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.60 $11.73 $10.86 $ 10.00
---------------- ------ ------ -------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.15 0.20 0.15
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 0.85 0.44 1.23 1.08
---------------- ------ ------ -------------------
Total from Investment Operations 0.91 0.59 1.43 1.23
---------------- ------ ------ -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.07) (0.41) (0.09) (0.09)
Net Realized Gain (0.46) (1.31) (0.47) (0.18)
Return of Capital -- -- -- (0.10)
In Excess of Net Investment Income (0.06) -- -- --
---------------- ------ ------ -------------------
Total Distributions to Shareholders (0.59) (1.72) (0.56) (0.37)
---------------- ------ ------ -------------------

NET ASSET VALUE, END OF PERIOD $ 10.92 $10.60 $11.73 $ 10.86
---------------- ------ ------ -------------------
---------------- ------ ------ -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 8.46%(b) 5.43% 13.12% 12.38%(b)
Net Assets, End of Period (in thousands) $ 9,202 $6,780 $6,250 $ 3,992
Ratios to Average Net Assets
Expenses 1.20%(c) 1.20% 1.20% 1.20%(c)
Net Investment Income 0.96%(c) 0.88% 1.25% 1.06%(c)
Expenses without Reimbursement 3.24%(c) 4.25% 3.18% 3.16%(c)
Portfolio Turnover 90% 149% 71% 68%
</TABLE>

- ------------------------
(b) Not annualized.

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

60
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

J.P. Morgan Series Trust II (the "trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end diversified management
investment company. The trust was organized as a Delaware Business Trust on
October 28, 1993 for the purpose of funding flexible premium variable life
insurance policies. The trust is composed of five separate portfolios (each, a
"portfolio" and collectively, the "portfolios") which operate as distinct
investment vehicles. The names and investment objectives of the portfolios are
as follows: J.P. Morgan Treasury Money Market Portfolio seeks to provide current
income, maintain a high level of liquidity and preserve capital; J.P. Morgan
Bond Portfolio seeks to provide a high total return consistent with moderate
risk of capital and maintenance of liquidity; J.P. Morgan Equity Portfolio seeks
to provide a high total return from a portfolio comprised of selected equity
securities; J.P. Morgan Small Company Portfolio seeks to provide a high total
return from a portfolio of equity securities of small companies; J.P. Morgan
International Opportunities Portfolio seeks to provide a high total return from
a portfolio of equity securities of foreign corporations.

J.P. Morgan International Opportunities Portfolio's investments in emerging
markets and international markets may involve certain considerations and risks
not typically associated with investments in the United States. Future economic
and political developments in emerging markets and foreign countries could
adversely effect the liquidity or value, or both, of such securities in which
the portfolio is invested. The ability of issuers of the debt securities held by
the J.P. Morgan Bond Portfolio to meet their obligations may be affected by
economic and political developments in a specific industry or region.

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

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

Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the

61
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
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 portfolios 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 rate 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 portfolios are
presented at the exchange rates and market values prevailing at the end
of the period, the portfolios do not isolate the portion of the results
of operations arising as a result of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of
securities during the period.

c) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. 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) Each 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.

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) Certain portfolios may enter into forward and spot foreign currency
contracts to protect securities and related receivables and payables
against fluctuations in future foreign currency rates. A forward contract
is an agreement to buy or sell currencies of different countries on a
specified future date at a specified rate. Risks associated with such
contracts include the movement in the value of the foreign currency
relative to the U.S. dollar and the ability of the counterparty to
perform.

62
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------

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. At June 30, 1998, the portfolios had open
forward foreign currency contracts as follows:

J.P. MORGAN BOND PORTFOLIO

<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
PURCHASE CONTRACTS CONTRACTUAL VALUE 6/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
German Mark 783,217,
expiring 07/30/98............................... $ 435,121 $ 435,089 $ (32)
</TABLE>

<TABLE>
<CAPTION>
SALES CONTRACTS SETTLEMENT VALUE
- ------------------------------------------------- -----------------
<S> <C> <C> <C>
German Mark 630,296, expiring 07/30/98........... $ 353,880 $ 350,138 $ 3,742
German Mark 1,897,896,
expiring 07/30/98............................... 1,074,686 1,054,310 20,376
French Franc 4,504,439,
expiring 07/31/98............................... 760,885 746,479 14,406
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 38,492
--------------
--------------
</TABLE>

J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO

<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
PURCHASE CONTRACTS CONTRACTUAL VALUE 6/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
German Mark 1,242,467,
expiring 08/19/98............................... $ 698,619 $ 690,998 $ (7,621)
Irish Pound 18,042, expiring 08/19/98............ 25,512 25,178 (334)
New Zealand Dollar 192,883, expiring 08/19/98.... 99,668 100,045 377
</TABLE>

<TABLE>
<CAPTION>
SALES CONTRACTS SETTLEMENT VALUE
- ------------------------------------------------- -----------------
<S> <C> <C> <C>
Australian Dollar 268,929, expiring 08/19/98..... $ 166,993 $ 167,045 $ (52)
German Mark 2,445,399,
expiring 08/19/98............................... 1,374,207 1,360,011 14,196
Hong Kong Dollar 638,827, expiring 08/19/98...... 81,188 82,086 (898)
Irish Pound 18,042, expiring 08/19/98............ 25,745 25,178 567
Netherland Guilder 164,836, expiring 08/19/98.... 82,916 81,335 1,581
New Zealand Dollar 248,696, expiring 08/19/98.... 132,120 128,995 3,125
</TABLE>

63
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
South African Rand 691,371, expiring 08/19/98.... 132,602 113,909 18,693
Swiss Franc 227,159, expiring 08/19/98........... 154,635 150,751 3,884
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 33,518
--------------
--------------
</TABLE>

h) Futures -- A future contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
portfolio enters into the contract. Upon entering into such a contract,
the portfolio is required to pledge to the broker an amount of cash
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. At June 30, 1998,
the J.P. Morgan Bond Portfolio had open futures contracts as follows:

SUMMARY OF OPEN CONTRACTS AT JUNE 30, 1998

<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
U.S. 5-Year Note,
expiring September 1998......................... 28 $ 1,551 $ 3,069,699
U.S. 10-Year Note,
expiring September 1998......................... 1 (256) 114,100
-------------- -------------- ----------------
Totals........................................... 29 $ 1,295 $ 3,183,799
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>

i) Each portfolio 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. Each 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 J.P Morgan International
Opportunities 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.

64
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------

2. TRANSACTIONS WITH AFFILIATES

a) The trust, on behalf of each portfolio, has an Investment Advisory
Agreement with J.P. Morgan Investment Management Inc. ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated. Under the
terms of the agreement, Morgan is paid a fee for its services, computed
daily and paid monthly, at an annual rate of: 0.20% of the average daily
net assets of J.P. Morgan Treasury Money Market Portfolio; 0.30% of the
average daily net assets of J.P. Morgan Bond Portfolio; 0.40% of the
average daily net assets of J.P. Morgan Equity Portfolio; 0.60% of the
average daily net assets of J.P. Morgan Small Company Portfolio and 0.60%
of the average daily net assets of J.P. Morgan International
Opportunities Portfolio. For the six months ended June 30, 1998, Morgan's
fees for these services amounted to $1,620, $25,571, $20,838, $16,819,
and $23,514, respectively.

b) The trust, on behalf of each portfolio, has retained Funds Distributor,
Inc. ("FDI"), a registered broker-dealer, to serve as the
co-administrator and distributor for each portfolio. Under a Co-
Administration Agreement between FDI and the trust on behalf of each
portfolio, FDI provides administrative services necessary for the
operations of each portfolio, furnishes office space and facilities
required for conducting the business of each portfolio and pays the
compensation of the portfolios' officers affiliated with FDI. Each
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 each 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 six months ended June 30, 1998, the fee for these services
amounted to: $12 for J.P. Morgan Treasury Money Market Portfolio, $120
for J.P. Morgan Bond Portfolio, $73 for J.P. Morgan Equity Portfolio, $40
for J.P. Morgan Small Company Portfolio and $55 for J.P. Morgan
International Opportunities Portfolio.

c) The trust, on behalf of each portfolio, has an Administrative Services
Agreement (the "Services Agreement") with Morgan Guaranty Trust Company
of New York ("Morgan Guaranty"), under which Morgan Guaranty is
responsible for certain aspects of the administration and operation of
each portfolio. Under the Services Agreement, each portfolio has agreed
to pay Morgan Guaranty a fee based on the percentages described below. If
total expenses of each portfolio, excluding the advisory fees, exceeds
the expense limits of: 0.40% of the average daily net assets of J.P.
Morgan Treasury Money Market Portfolio, 0.45% of the average daily net
assets of J.P. Morgan Bond Portfolio, 0.50% of the average daily net
assets of J.P. Morgan Equity Portfolio, 0.55% of the average daily net
assets of J.P. Morgan Small Company Portfolio and 0.60% of the average
daily net assets of J.P. Morgan International Opportunities Portfolio,
Morgan Guaranty will reimburse each portfolio for the excess expense
amount and receive no fee. Should such expenses be less than the expense
limits, Morgan Guaranty's fee would be limited to the difference between
such expenses and the fees calculated under the Services Agreement. For
the six months ended June 30, 1998, Morgan Guaranty has agreed to
reimburse the portfolios for expenses under this agreement as follows:
$19,833, $14,754, $33,935, $55,780 and $79,787, respectively.

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 portfolios' allocated portion of the
total fees and expenses.

65
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------

3. SHAREHOLDER TRANSACTIONS

The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares. Transactions in shares of beneficial interest of
each portfolio were as follows:

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>

J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO
Shares of beneficial interest sold............... 497 22,331,609
Reinvestment of dividends and distributions...... 24,653 12,537
Shares of beneficial interest redeemed........... (877) (22,328,305)
------------ -----------------
Net Increase..................................... 24,273 15,841
------------ -----------------
------------ -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>

J.P. MORGAN BOND PORTFOLIO
Shares of beneficial interest sold............... 735,475 1,205,082
Reinvestment of dividends and distributions...... 5,993 51,352
Shares of beneficial interest redeemed........... (470,236) (108,943)
------------ -----------------
Net Increase..................................... 271,232 1,147,491
------------ -----------------
------------ -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>

J.P. MORGAN EQUITY PORTFOLIO
Shares of beneficial interest sold............... 189,159 87,424
Reinvestment of dividends and distributions...... 6,907 150,317
Shares of beneficial interest redeemed........... (17,842) (7,706)
------------ -----------------
Net Increase..................................... 178,224 230,035
------------ -----------------
------------ -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>

J.P. MORGAN SMALL COMPANY PORTFOLIO
Shares of beneficial interest sold............... 87,111 55,026
Reinvestment of distributions.................... 6,356 92,418
Shares of beneficial interest redeemed........... (60,398) (59,040)
------------ -----------------
Net Increase..................................... 33,069 88,404
------------ -----------------
------------ -----------------
</TABLE>

<TABLE>
<S> <C> <C>
66
</TABLE>
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>

J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
Shares of beneficial interest sold............... 193,429 88,691
Reinvestment of dividends and distributions...... 36,815 116,906
Shares of beneficial interest redeemed........... (27,241) (98,969)
------------ -----------------
Net Increase..................................... 203,003 106,628
------------ -----------------
------------ -----------------
</TABLE>

4. INVESTMENT TRANSACTIONS

Investment transactions (excluding short-term investments) for the six months
ended June 30, 1998, were as follows:

<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------- -------------
<S> <C> <C>
J.P. Morgan Bond Portfolio
U.S. Government Agency Obligations.................................... $ 14,111,087 $ 11,973,955
Corporate, Collateralized Mortgage and Other Obligations.............. 6,988,821 4,778,535
J.P. Morgan Equity Portfolio............................................ 7,086,920 4,400,948
J.P. Morgan Small Company Portfolio..................................... 1,800,458 1,473,022
J.P. Morgan International Opportunities Portfolio....................... 8,412,301 6,701,163
</TABLE>

67
<PAGE>

J.P. MORGAN
SERIES TRUST II

J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO

J.P. MORGAN BOND PORTFOLIO

J.P. MORGAN EQUITY PORTFOLIO

J.P. MORGAN SMALL COMPANY PORTFOLIO

J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO

SEMI-ANNUAL REPORT
JUNE 30, 1998