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

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

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<PAGE>

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

February 11, 1998

Dear Shareholder:

Effective January 1, 1998, the trust's name has changed to J.P. Morgan Series
Trust II. When J.P. Morgan began advising mutual funds more than 15 years ago,
regulatory restrictions prevented us from using our name in the title of any
mutual fund, which led to the JPM acronym. With the evolution of today's
financial marketplace, we are now able to proudly include the full J.P. Morgan
name in the title of your Trust and its Portfolios.

We are pleased to provide you with the Annual report for the J.P. Morgan Series
Trust II.

Volatility returned to the markets in 1997. Large-cap stocks led the performance
derby, and the bond market also posted strong gains, reaching the lowest yields
in years. For the first time since 1990, the blue chip averages suffered a
double-digit correction. Currency and economic problems in Southeast Asia
revealed how truly interconnected the world's economies are. The trouble spread
during the fourth quarter to Europe and the U.S., giving investors some tense
moments. Many fled to quality, buying the Nifty Fifty stocks and long-term bonds
in response to the turmoil. By year-end, however, it was clear that Asia would
not be the death knell of this record bull market. The economy, which appeared
poised to overheat early in the year, confounded most observers by continuing to
grow at a "Goldilocks" pace -- not too fast, and not too slow.

The S&P 500 Index earned 33.36% for the year, beating 90% of all active money
managers. Though small-cap stocks performed strongly, earning 22.36% in 1997 as
measured by the Russell 2000 Index, they could not hold a candle to the
large-caps.

European stock markets had a strong year as well with the MSCI Europe Index
rising 23.80%. However, the Japanese market had a poor showing with the TOPIX
falling 28.19%. Emerging markets as a whole posted negative returns as well. The
net result was flat performance for the year in international equity markets.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
TABLE OF CONTENTS

LETTER TO THE SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . .1

PORTFOLIO REVIEWS

J.P. MORGAN TREASURY MONEY MARKET
PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

J.P. MORGAN BOND PORTFOLIO . . . . . . . . . . . . . . . . . . . . .6

J.P. MORGAN EQUITY PORTFOLIO . . . . . . . . . . . . . . . . . . . 12

J.P. MORGAN SMALL COMPANY PORTFOLIO . . . . . . . . . . . . . . . . 17

J.P. MORGAN INTERNATIONAL OPPORTUNITIES
PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 30
- --------------------------------------------------------------------------------
</TABLE>

<PAGE>

Fixed-income markets had a good year, with the Salomon Brothers Broad Investment
Grade Bond Index returning 9.62% and the Merrill Lynch 1-3 Year Treasury Index
returning 6.66%. Non-Treasury sectors performed best for the first three
quarters. The fourth quarter saw a significant widening of spreads as news from
Asia caused investors to seek the safety of U.S. Treasury securities.

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

<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 4.69% return for the 12 months ended December 31, 1997. The
Portfolio's net assets advanced from $1.4 million on December 31, 1996 to
$1.6 million at the end of the year under review.

For most of the past 12 months, market participants carefully monitored domestic
economic news, which seemed to provide conflicting evidence on the strength of
the U.S. economy. Later in the year, news from Asia dominated investors'
attention as the impact of the financial crisis on U.S. markets was unclear.
Throughout this year's ups and downs, the Treasury Money Market Portfolio has
maintained a conservative strategy.

EXAMINING PERFORMANCE

One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or 10 years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
-------------------- ----------------------------
THREE SIX ONE SINCE
AS OF DECEMBER 31, 1997 MONTHS MONTHS YEAR INCEPTION*
- --------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Treasury Money Market Portfolio 1.18% 2.36% 4.69% 4.81%
IBC U.S. Treasury and Repo
Money Fund Average** 1.20% 2.40% 4.78% 4.87%
Lipper Variable Annuity
Money Market Average 1.09% 2.59% 4.34% 4.45%
</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 NOT 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.

<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 January 30, 1998, and reflects
Skip's views on that date.

HOW WOULD YOU CHARACTERIZE THE SHORT-TERM FIXED INCOME MARKETS DURING 1997?

RRJ: All through 1996 and the first quarter of 1997, short-term interest rates
rose. The Federal Reserve tightened monetary policy by raising interest rates 25
basis points on March 25, and further tightening was expected. However, economic
growth was perceived to be slowing in June and interest rates rallied a bit.
Then in August, there was new concern that the economy may be experiencing
higher growth and thus the need for the Fed to tighten again.

The Fed tightening last March may have increased short-term rates, but there has
been a significant rally in the market since then. Short-term yields have fallen
as investors sought comfort in the Treasury bill market. Some of the movement
into money market funds was a result of the stock market turbulence, followed by
concerns about the currency crisis in the Pacific Rim. Also, the supply of
Treasury bills has decreased due to a reduction in the Federal budget deficit.
In addition, many people just want to hold Treasury bills, regardless of the
level of interest rates.

The summer rally ended on September 25, with the three-month Treasury bill
hitting a low of 4.91%. Since then, fears of an overheated U.S. economy again
pushed rates up. Toward the end of the reporting period, in November, seasonal
upward pressures contributed to the back-up in rates.

WHILE THE PORTFOLIO BEAT THE LIPPER VARIABLE ANNUITY MONEY MARKET AVERAGE, IT
LAGGED THE IBC U.S. TREASURY AND REPO MONEY FUND AVERAGE. WHY?

RRJ: This Portfolio invests in Treasury securites. The funds in the IBC
benchmark have the benefit of owning higher yielding repurchase agreements.

DO YOU THINK THE FED WILL RAISE RATES THIS YEAR?

RRJ: The Fed appears to be in a holding pattern and I don't think we'll see a
tightening without evidence of inflation. The strong dollar really helped put a
lid on inflation in 1997, and that's still intact. Recently, with signs that our
economy may be slowing, the possibility of easing has been mentioned. But the
Fed is still in the restrictive camp, making that even more unlikely without
evidence of a recession.

WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?

RRJ: The Asian turmoil may put an additional drag on the U.S. economy, which
may be slowing somewhat on its own. We are forecasting slower growth and lower
profit margins in 1998.

<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

The 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 12/31/97
$1,617,235

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

AVERAGE LIFE
30 DAYS

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

DIVIDEND PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 12/11/98

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

CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 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 DECEMBER 31, 1997

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[PIE CHART]

<TABLE>
<CAPTION>
<S> <C>
- - U.S. TREASURY OBLIGATIONS 99.5%

- - OTHER INVESTMENT COMPANIES 0.5%
</TABLE>

<PAGE>

J.P. MORGAN BOND PORTFOLIO

PORTFOLIO REVIEW

We are pleased to report that J.P. Morgan Bond Portfolio posted an impressive
return of 9.38% for the year ended December 31, 1997.

For the most part, 1997 was a good year for bonds. Treasuries in particular
benefited in 1997 from a shrinking supply and increasing investor demand,
resulting in the yield on the 30-year Treasury bond eventually hitting a
historic low of 5.69% on January 12, 1998. The outperformance of Treasuries
over other sectors occurred in the fourth quarter as investors focused their
attention away from domestic economic activity and toward Asia. During this
period, global investors flocked to Treasuries seeking safety.

The Portfolio's net asset value per share increased from $10.65 on December
31, 1996 to $11.29 on December 31, 1997. During the year, the Portfolio paid
$0.27 per share from net investment income, and $0.08 per share from capital
gains. The Portfolio's total net assets increased from $2.8 million to $15.9
million during the year.

<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE

There are several ways to evaluate a mutual fund's historical performance
record. One approach is to take a look at the growth of a hypothetical
investment of $10,000. The chart at right shows that $10,000 invested in the
Portfolio on January 3, 1995* would have been worth $13,050 at December 31,
1997.

Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five
or 10 years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.

GROWTH OF $10,000 SINCE INCEPTION*
JANUARY 3, 1995 -- DECEMBER 31,1997

[GRAPH]

The J.P. Morgan Salomon Brothers Lipper Variable Annuity
Bond Portfolio BIG Bond Index Corporate Debt A-Rated Average
--------------- ---------------- ------------------------------
<S> <C> <C>
Dec-94 10,000 10,000 10,000
Jun-95 11,000 11,151 11,134
Dec-95 11,689 11,855 11,891
Jun-96 11,405 11,706 11,630
Dec-96 11,931 12,284 12,189
Jun-97 12,263 12,660 12,533
Dec-97 13,050 13,466 13,312
</TABLE>

Lipper performance averages are calculated by taking an arithmetic average of
the returns of the funds in the group. The average annualized returns which
result from this methodology will differ from annualizing the growth of the
minimum initial investment.

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- ----------------------------
THREE SIX ONE SINCE
AS OF DECEMBER 31, 1997 MONTHS MONTHS YEAR INCEPTION*
- --------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Bond Portfolio 2.84% 6.42% 9.38% 9.27%
Salomon Brothers BIG Bond Index** 2.95% 6.37% 9.62% 10.43%
Lipper Variable Annuity
Corporate Debt A-Rated Average 2.47% 5.81% 8.38% 9.22%
</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.

LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.

<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 January 30, 1998,
and reflects Bill's views on that date.

CAN YOU GUIDE US THROUGH THE EVENTS OF THE YEAR?

WGT: Prior to the end of September, when the Southeast Asian market turmoil
erupted, the general theme of the fixed income markets was one of declining
market volatility leading to narrowing spreads and lower interest rates. Bonds
with embedded options (i.e. prepayable mortgages and callable corporate bonds)
were the stellar performers. The Asian currency problems effectively ended the
extended period of declining volatility.

HOW DID THESE EVENTS AFFECT THE PORTFOLIO'S PERFORMANCE?

WGT: Overall, the Portfolio had a good year. It provided strong returns that
beat the Lipper average, although October's events caused it to end the fiscal
year slightly behind the benchmark.

THIS PORTFOLIO IS STRATEGICALLY UNDERWEIGHTED IN TREASURIES AND OVERWEIGHTED IN
THE "SPREAD" SECTORS. WOULD THERE EVER BE A SCENARIO WHICH SPREADS WOULD TIGHTEN
TO THE EXTENT THAT THIS STRATEGIC POSITIONING WOULD NO LONGER BE APPROPRIATE?

WGT: Yes, that could happen. Currently, the Portfolio is still underweighted in
the Treasury sector. However, in the last six weeks we've reduced our holdings
in mortgage securities. Also, we've traded out of mortgage securities that we
felt had high "optionality" into other mortgage securities, which we think will
have very low option-like characteristics going forward.

There are many different things we can buy in the mortgage market that come
under the general heading of mortgages. An example would be multi-family loans
that are securitized by Fannie Mae and Freddie Mac, but which are locked out
from any pre-payments for long periods of time. A typical example would be a
10-year bond with a nine-and-a-half-year lockout of extraordinary pre-payment.
So it's a very "bullet-like" security. It does amortize on a 30-year schedule,
so it does roll down the curve. It also has pretty good yield characteristics,
but very little "optionality" because, if the borrower chooses to pay it off,
yield maintenance must be paid as well. This would amount to about an extra
year's interest. That's a fairly high barrier against making a pre-payment.
There are other securities like that in the marketplace as well. So we've
shifted some of our emphasis in the Portfolio as volatility has come back into
the marketplace.

<PAGE>

Likewise, in corporates we've gotten rid of some of our callable positions and
traded into bullet securities. With bullet or single-maturity securities, there
is no option to retire them. There are no call features. With no embedded
options on the part of the issuer to call the bonds, they tend to be more
stable.

THE PORTFOLIO HAS RECENTLY GOTTEN OUT OF SOME SECTORS WHERE THE SPREADS ARE THE
WIDEST. WHY?

WGT: That's because we have some concerns in those sectors, all triggered by
the problems in the Far East, which then spread to Latin American markets, and
eventually to our market. Things could get worse before they get better. Also,
interest rates in the U.S. have declined significantly of late, which could lead
to a wave of mortgage refinancing.

DO YOU EXPECT FURTHER VOLATILITY?

WGT: Yes. We don't think the volatility is going to end soon, even though it
seems to be easing a bit, especially in the Asian markets. More than ever, we're
all linked to each other, and the problems in Asia will continue to have an
effect on all markets.

The other aspect of this issue pertains to a potential slowdown in global
economies. The U.S. economy is of particular concern because we are at a very
mature point in the economic cycle. We think there will be a fairly significant
slowdown in GDP growth over the course of 1998.

WILL THAT BE GOOD FOR BONDS?

WGT: Certainly for Treasuries, and it should be good for investment grade
corporates. It'll be bad for mortgages because they will be prepaid. It will
also be bad news for high-yield securities, so we're looking to lighten up
there. There's a very strong performance correlation between equities and high
yield bonds. So if you have a lot of volatility in the equity market, it
generally means that the high-yield market is going to have a problem as well,
since these are riskier companies which have sold some equity, but are depending
on debt for expansion.

Looking ahead, we'll likely own fewer option-laden securities and probably go up
in quality, at least in the corporate market. Almost everything in the mortgage
market is already AAA-rated and guaranteed by either the Government or an
agency. We're still likely to be involved in the Brady bond market on an
opportunistic, highly selective basis. We won't get completely out of high
yield, but we'll seek higher ground in terms of quality in that sector. We're in
the process of weeding out the weaker securities in the high-yield sector.

<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

The 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 12/31/97
$15,899,125

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

DIVIDEND PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 12/11/98

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

CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 12/11/98

30-DAY SEC YIELD
5.81%

DURATION
4.71 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 DECEMBER 31, 1997

PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
- - U.S. GOVERNMENT AGENCY OBLIGATIONS 25.5%

- - CORPORATE OBLIGATIONS 22.9%

- - COLLATERALIZED MORTGAGE OBLIGATIONS
& ASSET BACKED SECURITIES 15.5%

- - SHORT-TERM INVESTMENTS 14.3%

- - U.S. TREASURY OBLIGATIONS 10.7%

- - FOREIGN CORPORATE OBLIGATIONS 6.5%

- - SOVEREIGN BONDS 3.9%

- - CONVERTIBLE PREFERRED STOCKS 0.6%

- - CONVERTIBLE BONDS 0.1%
</TABLE>

QUALITY BREAKDOWN
<S> <C>
AAA* 63%
AA 5%
A 17%
Other 15%
</TABLE>

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

<PAGE>

LARGEST HOLDINGS

% OF TOTAL
(EXCLUDING SHORT-TERM INVESTMENTS) INVESTMENTS
- ------------------------------------------------------------
<S> <C>
US TREASURY BOND 6.50%, DUE 11/15/2026 4.81%

FNMA 7.00%, DUE 4/01/2026 2.35%

GNMA 7.00%, DUE 8/15/2012 2.29%

PREMIER AUTO TRUST, SERIES 1995-3, CLASS A5
6.15%, DUE 03/06/2000 2.23%

GNMA 7.50%, DUE 4/15/2027 2.06%

FNMA 7.00%, DUE 1/1/2026 2.05%

FHLMC 6.50%, DUE 9/15/2023 1.98%

FORD MOTOR CREDIT CORP., SERIES MTN,
7.47%, DUE 7/29/1999 1.95%

FNMA REMIC: PAC-1(11), SERIES 1993-
78, CLASS G, 6.50%, DUE 11/25/2007 1.93%

GENERAL MOTORS ACCEPTANCE CORP., 6.70%,
DUE 06/24/1999 1.92%
</TABLE>

<PAGE>

J.P. MORGAN EQUITY PORTFOLIO

PORTFOLIO REVIEW

We are pleased to report that the J.P. Morgan Equity Portfolio posted an
excellent return of 27.50% for the year ended December 31, 1997. The Portfolio
edged out the Lipper Variable Annuity Growth & Income Average, which returned
27.21% for 1997.

In a year in which the S&P 500 Index beat 90% of all active money managers, the
Portfolio was not able to keep pace with the Index's 33.36% return.

Bigger was better for much of 1997. The largest of the large-cap stocks
dominated the financial papers on most trading days last year. The S&P 500
Index, which places more emphasis on its largest stocks, was buoyed by the
large-cap outperformance, making it very hard for most active managers to keep
up.

During the third quarter, the high valuations of many large-cap stocks began to
give investors pause. As buyers concentrated on mid-caps and small-caps, the
dominance of the large-caps started to wane. However, the crisis in Southeast
Asia quickly drove investors back to the large-caps in a flight to quality.

In times of trouble, investors tend to buy what they perceive as more stable
investments.

We underperformed our benchmark because we were not willing to invest your money
in stocks that we believed offered little value for the price. The
price/earnings ratios for many of the year's top performers were north of 40 --
a number we view as indicating a poor tradeoff between risk and return. Instead,
we held more modestly valued stocks.

Our approach allowed us to keep pace with our peers and earn excellent returns
for our shareholders in 1997, while keeping an eye on risk.

The Portfolio's net asset value per share increased from $13.68 on December 31,
1996 to $14.33 on December 31, 1997. During the year, the Portfolio paid $0.11
per share from net investment income, $1.07 per share from short-term capital
gains, and $1.79 per share from long-term capital gains. In addition, the
Portfolio's net assets grew from $5.3 million at the start of the year to $8.9
million at the end.

<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE

There are several ways to evaluate a mutual fund's historical performance
record. One approach is to take a look at the growth of a hypothetical
investment of $10,000. The chart at right shows that $10,000 invested in
the Portfolio on January 3, 1995* would have been worth $20,685 at
December 31, 1997.

GROWTH OF $10,000 SINCE INCEPTION*
JANUARY 3, 1995 -- DECEMBER 31,1997

[GRAPH]

J.P. Morgan Lipper Variable Annuity
Equity Portfolio Growth & Income Average S&P 500 Index
---------------- ----------------------- -------------
<S> <C> <C> <C>
Dec-94 10,000 10,000 10,000
Jun-95 11,940 11,651 12,021
Dec-95 13,378 13,182 13,758
Jun-96 14,620 14,426 15,147
Dec-96 16,223 15,960 16,917
Jun-97 19,024 18,476 20,403
Dec-97 20,685 20,277 22,561
</TABLE>

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- ----------------------------
THREE SIX ONE SINCE
AS OF DECEMBER 31, 1997 MONTHS MONTHS YEAR INCEPTION*
- ---------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Equity Portfolio -0.47% 8.73% 27.50% 27.41%
S&P 500 Index** 2.87% 10.58% 33.36% 31.15%
Lipper Variable Annuity
Growth & Income Average 0.69% 9.66% 27.21% 26.57%
</TABLE>

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

**THE S&P 500 INDEX: AN UNMANAGED INDEX USED TO PORTRAY THE PATTERN OF STOCK
MOVEMENT BASED ON 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.

LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.

<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTOGRAPH]

The following is an interview with WILLIAM B. PETERSEN, a member of the
portfolio management team for the J.P. Morgan Equity Portfolio. Bill joined
Morgan in 1972 as a research analyst. He became a member of the firm's portfolio
management team in 1977. This interview took place on February 2, 1998, and
reflects Bill's views on that date.

THE WORD ON EVERYONE'S LIPS THESE DAYS IS "ASIA." HOW DID THE PORTFOLIO WEATHER
THE INITIAL STORM, AND WHAT EFFECT DO YOU THINK THE ASIAN CRISIS WILL HAVE IN
THE NEAR FUTURE?

WBP: October wasn't an easy time to be an equity manager. Our Portfolio had
been outpacing its benchmark in the third quarter, when investors began to
broaden their buying beyond the "Nifty Fifty" -- the 50 largest stocks in the
S&P 500. Since we are overweighted in mid-cap stocks, we benefited from this
shift. After the October correction, however, the 50 largest stocks became
popular once more. The trouble overseas led investors to take refuge in the
names they know and trust -- Coke, GE and the like.

Although the correction had let some of the steam out of these stocks'
valuations, we still didn't view many of the Nifty Fifty as good buys. We stuck
to our discipline, and thus lagged the S&P 500 for the fourth quarter and the
full year. We believe that there is a tremendous amount of value to be found by
investing outside of the largest companies.

Going forward, I believe investors will realize the U.S. has weathered the
storm. At this writing, for example, the Dow is flirting once more with its
all-time high, reached in August of 1997. Once investors begin to look for
stocks that represent good value, they'll recognize that the largest of the
large don't offer that value. In fact, some large companies may bring earnings
disappointments as the effects of losses in their foreign units are felt on
their income statements.

WHAT EFFECT WILL THE U.S. DOLLAR'S BULL MARKET HAVE ON U.S. EQUITIES?

WBP: As the U.S. dollar reaches new highs, our companies can be negatively
impacted in two ways: (1) U.S. companies that export overseas become much less
competitive in the global marketplace, and (2) the value of companies' foreign
earnings declines when translated into dollar terms from a weaker currency. So
large multinational companies may suffer from a strong dollar.

More important than those precise problems, however, is the vulnerability of the
current market to any problem. High valuations make the market, like a tall
house of cards, more susceptible to an upset. History has shown that, when stock
valuations are as high as they are now, any disappointment, no matter how small,
can be a negative catalyst.

<PAGE>

AFTER SEVERAL YEARS OF OUTPERFORMANCE BY THE S&P 500, MANY INVESTORS VIEW
INDEXING AS AN ATTRACTIVE ALTERNATIVE TO ACTIVE MANAGEMENT. HOW WOULD YOU
COUNSEL THEM?

WBP: It's only natural to want to invest in the style that's been outperforming
over the most recent period. The trouble lies in the cyclical nature of the
market. Very often, a style (like indexing) is hot for a period of months or
years, and then suddenly goes cold for a period of months or years. And, not
coincidentally I think, most styles go cold right after they've received huge
inflows of investment dollars.

The S&P 500 has been a very difficult benchmark for active managers to beat
during the last several years, partly because of its concentration in the
largest stocks by market capitalization. In fact, in 1997, only 10% of active
equity mutual funds beat the Index. That's the lowest figure this decade.

However, not too long ago, in the early '90s, nearly two-thirds of the managers
- -- J.P. Morgan included -- were beating the Index. The point is that no
investment style is right all the time. But good managers distinguish themselves
by staying with their style, even when that style isn't paying off. And bad
managers all have one thing in common: they frantically change what they're
doing whenever it's not working, thus ensuring disaster.

We are quite optimistic about the performance of the Portfolio relative to the
benchmark. We believe we're entering a period in which stock picking will add
more value and be more important than it has been in recent years. If volatility
continues to increase, and the stock market resumes more normal patterns of
returns -- historically much closer to 10% than to 30% -- most investors will
want active money management in their corner.

WHICH STOCKS AND SECTORS ADDED TO THE PORTFOLIO'S STRONG PERFORMANCE?

WBP: We benefited the most from our holdings in the services sector.
Tele-Communications Inc. and Time Warner, two cable stocks that we owned, paid
off for us in 1997. For more than three years, cable stocks had languished.
Investors were betting that satellite TV, more than cable, would be the wave of
the future. We believed otherwise, and held these stocks even though they were
out of favor. In 1997, satellite TV was de-emphasized as the benefits of cable
- -- especially its use in conjunction with the Internet -- became clear. The
cable stocks took off, and our research was rewarded.

We also benefited from an underweighting in utilities stocks, which did poorly
as talk of deregulation in that industry led to falling stock prices.

WHICH INVESTMENT DECISIONS HELD THE PORTFOLIO BACK?

WBP: As I mentioned earlier, the biggest detriment was our decision not to own
the high-flying large-cap stocks. Our underweightings in Microsoft and GE, in
particular, caused our performance to deviate from the performance of the S&P
500, as those stocks make up a large portion of the Index and posted strong
gains in 1997. However, Morgan's long-term success has come from placing as much
emphasis on risk-adjusted returns as we do on absolute returns. Buying these
stocks would have directly contradicted our mandate.

<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

The 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 stock 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 12/31/97
$8,892,312

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

DIVIDEND PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 12/18/98

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

CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 12/18/98

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 DECEMBER 31, 1997

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
- - CONSUMER GOODS
& SERVICES 22.3%

- - TECHNOLOGY 15.5%

- - FINANCE 15.4%

- - HEALTH CARE 11.1%

- - UTILITIES 9.4%

- - ENERGY 8.5%

- - INDUSTRIAL PRODUCTS
& SERVICES 7.9%

- - SHORT-TERM & OTHER
INVESTMENTS 5.2%

- - BASIC INDUSTRIES 3.5%

- - TRANSPORTATION 1.2%
</TABLE>

LARGEST HOLDINGS
(EXCLUDING SHORT-TERM INVESTMENTS) % OF TOTAL INVESTMENTS
- ------------------------------------------------------------------------
<S> <C>
TOSCO CORP 2.9%
(ENERGY)

PROCTER & GAMBLE CO. 2.6%
(CONSUMER GOODS & SERVICES)

FIRST UNION CORP. (FINANCE) 2.5%

WARNER-LAMBERT CO. (HEALTH CARE) 2.4%

EXXON CORP. (ENERGY) 2.1%

UNITED HEALTHCARE CORP. 2.0%
(HEALTH CARE)

FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.9%
(FINANCE)

PHILIP MORRIS COMPANIES, INC. 1.9%
(CONSUMER GOODS & SERVICES)

ANHEUSER BUSCH COMPANIES, INC. 1.9%
(CONSUMER GOODS & SERVICES)

BRISTOL-MYERS SQUIBB CO. (HEALTH CARE) 1.9%
</TABLE>

<PAGE>

J.P. MORGAN SMALL COMPANY PORTFOLIO

PORTFOLIO REVIEW

We are pleased to report that J.P. Morgan Small Company Portfolio posted an
excellent return of 22.50% for the year ended December 31, 1997.

The Portfolio edged out its benchmark, the Russell 2000 Index, which returned
22.36% for 1997. Our outperformance is more striking when you note that the
Portfolio lagged the Index for the first six months of the year. We surpassed
the return of the Lipper Variable Annuity Small Cap Funds Average, which
earned 18.95% for the 12 months.

The Portfolio had a bumpy ride in 1997. The first quarter was difficult for
us, as we suffered a decline along with the benchmark. In the second quarter,
small-cap stocks recovered, and the Portfolio was able to make up its losses.
The third quarter saw small-caps handily outperform large-caps. Then, in the
fourth quarter, the small-cap market suffered because of the Asian crisis.
Large-caps reasserted their dominance as investors responded to market
volatility by taking refuge in the blue chip names they know.

Although the fourth quarter was challenging for small-cap managers, the
portfolio was able to outperform its benchmark, the Russell 2000 Index,
during October's market turbulence. Two things helped us: (1) our emphasis on
reasonable valuations, and (2) our sector-neutral approach to investing.
First, we do not buy stocks that we view as overvalued. These stocks may look
tempting, but historically they have been much more vulnerable to market
upsets. Second, we maintain sector, or industry group, weightings similar to
those of our benchmark. This helps to lessen the risks associated with
putting all your investment eggs in a few baskets. We were pleased that our
measured approach served our shareholders well in October.

The 12 months through December represented the stock market's most volatile
year since 1987. If volatility continues to be a factor going forward, we
believe we are well-positioned to steer a straight course. Our slightly
below-market beta, combined with our broad diversification -- roughly 260
stocks -- should help us earn the growth of small-cap stocks while providing
you with somewhat more consistent returns than the average small-cap fund.

The portfolio's net asset value per share increased from $12.53 on December
31, 1996 to $13.09 on December 31, 1997. During the year, the Portfolio paid
$0.04 per share in dividend income, $1.25 per share from short-term capital
gains, and $0.72 per share in long-term capital gains. In addition, the
Portfolio's net assets grew from $3.9 million at the start of the year to
$5.2 million at the end of the year.

<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE

GROWTH OF $10,000 SINCE INCEPTION*
JANUARY 3, 1995 -- DECEMBER 31,1997

[GRAPH]

J.P. Morgan Lipper Variable
Small Company Portfolio Russell 2000 Index Annuity Small Cap Funds Average
----------------------- ------------------ -------------------------------
<S> <C> <C> <C>
Dec-94 10,000 10,000 10,000
Jun-95 11,760 11,442 11,398
Dec-95 13,287 12,844 12,860
Jun-96 14,777 14,175 14,696
Dec-96 16,183 14,963 15,383
Jun-97 17,395 16,489 16,704
Dec-97 19,824 18,308 18,340
</TABLE>

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- ----------------------------
THREE SIX ONE SINCE
As of December 31, 1997 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Small Company Portfolio -1.62% 13.97% 22.50% 25.62%
Russell 2000 Index** -3.35% 11.03% 22.36% 22.33%
Lipper Variable Annuity
Small Cap Funds Average -4.87% 9.62% 18.95% 21.61%
</TABLE>

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

**THE RUSSELL 2000 INDEX: AN UNMANAGED INDEX USED TO PORTRAY THE PATTERN OF
STOCK MOVEMENT BASED ON 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.

LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.

<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTOGRAPH]

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 February 3, 1998, and reflects Steve's
views on that date.

STEVE, THIS WAS A ROLLER COASTER YEAR FOR SMALL-CAP STOCKS. WHAT CAN SMALL-CAP
INVESTORS EXPECT IN 1998?

SJR: Our research tells us that the outlook for small-cap stocks is good for
two reasons. Most importantly, relative valuations favor small-cap stocks right
now. The price/earnings ratio of small stocks indicates that smaller companies
are offering better returns for the money than larger companies. The biggest
stocks are currently trading at historically high price/earnings ratios, while
the Russell 2000 Index has what we consider a more reasonable price/earnings.
Price/book ratios tell a similar story. Large-cap stocks have been outperforming
small-caps for several years, and market history shows that the best time to buy
a stock or style is after it's been out of favor and is priced reasonably.

The second reason small-caps look good as we enter 1998 is that the U.S. dollar
is reaching new highs. A strong U.S. dollar can negatively impact large
companies in two ways: (1) U.S. companies that export overseas become much less
competitive in the global marketplace, and (2) the value of companies' foreign
earnings declines when translated into dollar terms from a weaker currency. So
large multinational companies may suffer from a strong dollar. Small companies,
which are more insulated from world events, should do better in contrast.

WHAT IMPACT DO YOU THINK THE TROUBLE IN ASIA WILL HAVE ON THE SMALL-CAP MARKET?

SJR: During the fourth quarter, the difficulties overseas led investors back to
large-cap stocks in droves. For all their benefits, small-cap stocks are more
volatile, and have a greater likelihood of failing to report earnings in times
of trouble than do large-caps. In late 1997, investors overlooked the high
valuations of large-caps in favor of greater perceived stability.

But buying large-caps today requires a willingness to turn a blind eye to the
fact that many of these large companies make the bulk of their profits from
overseas business. Coca-Cola, for example, earns a substantial portion of its
revenues outside the U.S. We believe that, once investors think this through,
they'll re-evaluate their holdings and decide to focus their investments in
companies that are less vulnerable to the fluctuations of world markets.

<PAGE>

HAVEN'T SOME SMALL-CAP SECTORS BEEN BUFFETED BY THE TROUBLE IN ASIA?

SJR: Sure. Technology stocks and basic industry stocks are two small-cap
sectors that have been affected. The techs have seen sales in Asia suffer, and
have had to cope with less reliable Asian suppliers of parts. The market
realized this almost immediately, and tech stocks were hard hit in October.
Basic industry stocks -- wood and steel companies, for example -- are suffering
as well. As the global expansion slows, the building boom in developing Asian
nations is coming to a standstill. The resulting surplus of raw materials will
affect pricing around the globe.

The benefit of our style of management is that we never overweight industry
groups in our Portfolio. While many of our small-cap peers have the flexibility
to load up on sectors that they believe will outperform, we keep our industry
group weightings close to those of the Russell 2000 Index. Thus, we are less
likely to be the victims of an industry group "blow up."

WHICH STOCK SELECTION DECISIONS HELPED THE PORTFOLIO'S PERFORMANCE?

SJR: Banks and health services were two of our strongest sectors. One of the
main contributors to our performance for the year was D.R. Horton. We've held a
large position in this stock for some time, even when it was widely overlooked
by Wall Street's consensus. D.R. Horton builds and sells high-quality
single-family homes, usually to first-time buyers. Their entrepreneurial
management structure and conservative approach to land purchases have placed
them in good standing -- they have the highest margin and are the fastest
growing of any home builder. In the current environment of strong economic
growth and low interest rates, builders of new homes are growing rapidly.

WHICH STOCKS INHIBITED THE PORTFOLIO'S PERFORMANCE?

SJR: The consumer staple, miscellaneous finance and transportation sectors held
us back. American Pad and Paper was one of our biggest problems -- it lost 22.6%
for the year. The company announced an earnings disappointment, which it
attributed to the competitive pricing environment in its commodity envelope
business. We believe that this stock has fundamental value, and that its
problems are short-term in nature, so we took advantage of the lower price and
added to our position.

Because of our systematic investment approach, however, no single stock can have
an overwhelmingly negative impact on the Portfolio. We diversify so broadly that
our largest positions usually make up no more than 4% of the Portfolio's assets.
This is yet another way that we seek to earn consistent returns that are
superior to our benchmark.

<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

The 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 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 12/31/97
$5,195,845

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

DIVIDEND PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 12/11/98

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

CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 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 DECEMBER 31, 1997

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
- - FINANCE 22.4%

- - INDUSTRIAL PRODUCTS
& SERVICES 12.9%

- - CONSUMER GOODS
& SERVICES 12.3%

- - BASIC INDUSTRIES 11.5%

- - TECHNOLOGY 10.8%

- - HEALTH CARE 10.7%

- - UTILITIES 6.8%

- - ENERGY 3.8%

- - OTHER 5.1%

- - SHORT-TERM
INVESTMENTS 3.7%
</TABLE>

LARGEST HOLDINGS
(EXCLUDING SHORT-TERM INVESTMENTS) % OF TOTAL INVESTMENTS
- -----------------------------------------------------------------
<S> <C>
CAPITAL RE CORP. (FINANCE) 3.4%

DEKALB GENETICS CORP., CLASS B 3.0%
(BASIC INDUSTRIES)

D.R. HORTON, INC. 2.8%
(INDUSTRIAL PRODUCTS & SERVICES)

COMMERCIAL METAL CO. (BASIC INDUSTRIES) 2.1%

RENAISSANCERE HOLDINGS, LTD. (FINANCE) 1.6%

INTERMET CORP.
(INDUSTRIAL PRODUCTS AND SERVICES) 1.6%

CENTRAL LOUISIANA ELECTRIC CO. (UTILITIES) 1.6%

WABASH NATIONAL CORP
(INDUSTRIAL PRODUCTS & SERVICES) 1.4%

GARDEN RIDGE CORP.
(CONSUMER GOODS & SERVICES) 1.2%

ORBITAL SCIENCES CORP. (TECHNOLOGY) 1.2%

</TABLE>

<PAGE>

J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO

PORTFOLIO REVIEW

We are pleased to report that the J.P. Morgan International Opportunities
Portfolio provided an impressive 5.43% return for the fiscal year ended December
31, 1997. The Portfolio outperformed the 1.78% return of its benchmark, the MSCI
EAFE Index, for the same annual period. The Portfolio's strong performance is
largely attributable to its low weighting in Japan; this market struggled
throughout 1997, and ended the year quite poorly. Portfolio performance was also
enhanced by a healthy exposure to the strongly performing European markets.

Exposure to emerging markets was a two-edged sword: in the first nine months of
1997, emerging market exposure enhanced portfolio performance. However, the
Asian crisis of the fourth quarter -- and the extreme mark-downs it created in
most emerging markets -- negatively impacted the Portfolio.

Overall, however, stock-selection decisions were strong, and the Portfolio ended
its year well ahead of its benchmark.

The Portfolio's net asset value per share decreased from $11.73 on December 31,
1996 to $10.60 at the end of the 12 months under review, after making
distributions of $0.41 from net investment income, $0.46 from long-term capital
gains and $0.85 from short-term capital gains. In addition, the Portfolio's net
assets advanced from $6.2 million on December 31, 1996 to $6.8 million on
December 31, 1997.

<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE

GROWTH OF $10,000 SINCE INCEPTION
JANUARY 3, 1995 -- DECEMBER 31,1997

[GRAPH]

J.P. Morgan International Lipper Variable Annuity
Opportunities Portfolio MSCI EAFE Index International Opportunities Average
----------------------- --------------- -----------------------------------
<S> <C> <C> <C>
Dec-94 10,000 10,000 10,000
Jun-95 10,230 10,260 10,407
Dec-95 11,236 11,121 11,191
Jun-96 12,002 11,623 12,276
Dec-96 12,715 11,793 12,802
Jun-97 14,034 13,115 14,354
Dec-97 13,406 12,003 13,484
</TABLE>

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- ----------------------------
THREE SIX ONE SINCE
AS OF DECEMBER 31, 1997 MONTHS MONTHS YEAR INCEPTION*
- --------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan International
Opportunities Portfolio -6.75% -4.48% 5.43% 10.25%
MSCI EAFE Index** -7.83% -8.48% 1.78% 6.27%
Lipper Variable Annuity
International Opportunities Average -7.34% -5.94% 5.17% 11.63%
</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.

PAST PERFORMANCE IS NOT 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.

<PAGE>

Portfolio manager Q&A

[PHOTOGRAPH]

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 B.A. 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 February 10, 1998 and reflects his
views on that date.

THE PORTFOLIO ENDED ITS FISCAL YEAR DURING A VERY VOLATILE TIME FOR
INTERNATIONAL AND EMERGING EQUITY MARKETS. WOULD YOU COMMENT ON WHAT CAUSED THAT
TURBULENCE?

NFE: The September through December period saw volatility around the world, in
reaction to economic problems and currency devaluations in the Southeast Asian
region. Many SE Asian currencies were pegged to the U.S. dollar, meaning their
currency values were kept at levels near the value of the U.S. dollar.
Throughout the summer, investors began to question the sustainability of those
pegs to the U.S. dollar. In other words, based on the overheated and unhealthy
economic scenarios in many of these SE Asian countries, investors were
understanding that many SE Asian currencies were unjustifiably expensive, and a
widespread sell-off of these currencies occurred. As a result, there were severe
devaluations of the currencies in Thailand, Malaysia, and Indonesia.

The selling momentum carried into the last months of the year, and currency
speculators moved into Hong Kong -- which was actually considered one of the
healthier SE Asian economies. When the Hong Kong dollar was threatened with
devaluation, the world took notice. That seemed to be the catalyst for investors
to scrutinize the world's equity markets, and reprice downward where it was
perceived that greater risk actually existed. As a result, October saw a
"repricing of risk." While some of the selling was justified and based on
investors' understanding that the fundamentals behind the prices were weaker
than originally perceived, other selling was more "sympathetic," and occurred
despite strong fundamentals. Either way, the world saw a lot of turbulence at
the end of 1997.

DESPITE THIS VOLATILITY THROUGHOUT THE WORLD, EUROPEAN EQUITY MARKETS OVERALL
POSTED A STRONG 1997 RETURN. WHAT WERE THE PRIMARY REASONS FOR EUROPE'S ADVANCE?

NFE: In an environment of generally poor international equity returns in the
calendar year 1997, European equity markets stood out as being among the best
performers. The MSCI Europe Index returned 23.80% (in U.S. dollar terms),
compared to an overall international equity return of 1.80% (MSCI EAFE Index).
European markets benefited from a low interest rate environment, as well as from
the trend we've seen over the last couple of years of ongoing mergers and
restructurings, and the reduced corporate costs which have resulted.

<PAGE>

What also helped European markets was a solid macro-economic picture. European
governments have done a very good job of controlling their spending to keep
inflation low. Additionally, they have used interest rates as a tool to keep
inflation rates low, which should help Europe's competitiveness going forward.

JAPAN, HASN'T PERFORMED WELL FOR A VERY LONG TIME. DO WE EXPECT A TURNAROUND
SOON?

NFE: Japan is the one major market where there is more of an economic
justification for the decline of its equities. Japanese earnings have been quite
depressed over the last few years without much of a rebound. Also, prospects for
an earnings upsurge for Japanese domestic companies -- OR increasing growth for
the domestic economy -- remain very subdued.

The one bright spot on the Japanese horizon has been the earnings growth of the
Japanese exporters; they've benefited from a weak yen versus the U.S. dollar.
Having said that, however, the devaluation of SE Asian currencies has obviously
had a negative impact on the export competitiveness of Japanese companies. And
of particular importance is the fact that some of the Northeast Asian
currencies, such as the Taiwanese dollar and the Korean won, have also been hit;
these countries are the real competitors in industrial terms with Japan. So the
devaluations have made Japanese exports look more expensive. For a while, the
yen had stubbornly refused to move. But the fact that Japanese exporters started
to look less competitive made investors question the levels of the Japanese
market, which eventually further hurt equity performance.

Going forward, however, we think the Japanese market is structurally changing,
and moving toward deregulation and increased competition. The
telecommunications, pharmaceutical, and retail sectors are all becoming
increasingly deregulated, which should have positive long-term effects. Also,
we've seen a number of companies in Japan go bankrupt -- two construction
companies in September. It would have been unheard of two or three years ago for
large Japanese companies to go bankrupt, but now it is happening. In reality,
this will also have positive long-term effects. The traditional Japanese
companies, used to operating in a protected domestic environment, will have to
exert tighter controls over their costs, in order to prosper in the future.

Right now, however, domestic demand remains stubbornly weak in Japan. We're also
not seeing the sort of margin improvements from companies that we might have
expected. So while the large exporters have done a good job of improving their
costs, we believe more structural change is needed in the domestic sector before
Japan turns around. We still need to see further evidence of restructuring in
the domestic sector, which we aren't seeing just yet.

COMMENT ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIO -- PARTICULARLY IN TERMS
OF COUNTRY WEIGHTING AND STOCK SELECTION -- THROUGHOUT THE ANNUAL PERIOD.

NFE: Compared to many international equity funds in 1997, the Portfolio had a
very positive year. Regarding country-allocation decisions, the Portfolio
benefited in particular from its low weighting in Japan (relative to the MSCI
EAFE Index, for instance). The Portfolio's highest exposure in Japan last year
was approximately

<PAGE>

15%, compared to the 25% in the EAFE Index. With Japan being down almost -24%
last year (in U.S. dollar terms) the Portfolio obviously benefited from its low
Japanese exposure.

Another positive for the Portfolio was its high exposure to European equity
markets. European markets were up 23.80% in 1997 (in U.S. dollar terms).
However, emerging market exposure did hurt performance in the final quarter of
the year, as the Asian crisis -- and its contagion effect on other emerging
countries -- caused a severe mark-down in most emerging equity markets during
the fourth quarter.

In terms of stock selection, we were able to add significant value. In Europe,
for instance, stock-selection decisions in Germany and Italy were most
beneficial. In other markets, however, stock-selection decisions detracted from
the Portfolio's performance. Japanese and U.K. holdings were the two major
negatives in this area. In the U.K., the Portfolio had little expsoure to the
highest-cap stocks, as we believed they were overvalued and too expensive. It
turned out, however, that the large-cap stocks in the U.K. market performed
well, and better than the mid-cap stocks in which the Portfolio was invested.

However, the Portfolio benefited from some good stock choices. Even in emerging
markets, the decline experienced in the last quarter of the period was not as
severe because of successful stock-selection decisions. In other words, while
emerging markets in general went down in the fourth quarter, Portfolio
performance went down less because many of its holdings performed better than
the Index.

LOOKING AHEAD TO 1998, WHERE DO YOU EXPECT TO FIND GOOD INVESTMENT
OPPORTUNITIES?

NFE: There are still areas where volatility is too great to capitalize on
opportunity. But our longer-term valuation analysis suggests that some of the
Asian markets are beginning to look attractive. For example, while we continue
to limit the Portfolio's exposure to Malaysia, we have increased exposure to
Singapore, where we think there is good value. Since Singapore is a
service-oriented economy -- rather than industrial-orientated, like Malaysia --
we believe it is less vulnerable to the impact of devaluations.

We have also increased the Portfolio's exposure in Korea and Thailand. While
conditions are still not perfect, the fall in prices already reflects a lot of
bad news. However, to be pragmatic and employ a tactical perspective, we expect
continued volatility over the near term. And I think the key issue for the
upcoming year is when and how much to return to Asia. While we believe that
value has returned to Asia -- and we are likely to be net buyers, not sellers,
in the region -- timing will be a key issue. Two other economies in the region
our analysis deems attractive are Australia and New Zealand.

Also important, regarding opportunities in Europe, we expect in some markets --
where companies continue to restructure -- to see positive surprises on the
earnings front; these markets should then continue to provide buoyant returns in
1998. We continue to favor Germany, the U.K., and Italy. We also believe
Ireland, because of its good economic backdrop, will offer promising
opportunities.

<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

The 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 12/31/97
$6,779,901

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

DIVIDEND PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 12/18/98

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

CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
4/29/98 AND 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 DECEMBER 31, 1997

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
- - EUROPE/AFRICA 61.3%

- - ASIA PACIFIC 15.6%

- - JAPAN 9.5%

- - LATIN AMERICA 9.4%

- - CANADA 3.0%

- - OTHER 1.2%

</TABLE>

LARGEST HOLDINGS
(EXCLUDING SHORT-TERM HOLDINGS) % OF TOTAL INVESTMENTS
- ---------------------------------------------------------
<S> <C>
MUENCHENER RUECKVERSICHERUNGS
GESELLSCHAFT AG (GERMANY) 1.72%
NESTLE SA (SWITZERLAND) 1.39%
POTASH CORP. OF SASKATCHEWAN INC. (CANADA) 1.39%
COMPAGNIE GENERALE DES EAUX (FRANCE) 1.38%
GLAXO WELLCOME PLC (U.K.) 1.34%
TELECOM ITALIA SPA-RNC (ITALY) 1.34%
INSTITUTO NAZIONALE DELLE
ASSICURAZIONI (ITALY) 1.32%
ROYAL BANK OF SCOTLAND GROUP PLC (U.K.) 1.30%
IBERDROLA SA (SPAIN) 1.27%
VEBA AG (GERMANY) 1.25%

</TABLE>

<PAGE>

DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. IS
THE PORTFOLIOS' INVESTMENT ADVISER. 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.

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.

<PAGE>

THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY

<PAGE>
J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- -------------- ------------ -----------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (100.9%)
$ 1,586 United States Treasury Bills..................... 01/22/98 4.550-5.195% $ 1,581,265
50 United States Treasury Notes..................... 10/31/98 5.875 50,093
-----------
TOTAL U.S. TREASURY OBLIGATIONS.............. 1,631,358
-----------

OTHER INVESTMENT COMPANIES (0.5%)
9 Seven Seas Money Market Fund..................... 01/02/98 5.620 8,679
-----------
TOTAL INVESTMENTS (COST $1,640,045) (101.4%).................................... 1,640,037
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.4%)................................... (22,802)
-----------
NET ASSETS (100.0%)............................................................. $ 1,617,235
-----------
-----------
</TABLE>

- ------------------------------
Note: For Federal Income Tax Purposes, the cost of securities at December 31,
1997, was substantially the same as the cost for financial statement purposes.
The aggregate gross unrealized appreciation and depreciation was $0 and $8,
respectively, resulting in net unrealized depreciation of $8.

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

30
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (15.4%)
FINANCIAL SERVICES (15.4%)
$ 75,000 BTC Mortgage Investment Trust, Series 1997-S1,
Class B, (144A), 6.454% due 12/31/09........... Aaa/AAA $ 75,000
250,000 Caterpillar Financial Asset Trust, Series 1996-A,
Class A3, Callable, 6.30% due 05/25/02......... Aaa/AAA 251,217
200,000 CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C2, Class A1,
Callable, 6.40% due 02/17/04................... Aaa/AAA 201,187
100,000 CS First Boston Mortgage Securities Corp., Series
1997-C2, Class B, Callable, 6.72% due
11/19/07....................................... Aa2/NR 100,594
200,000 First Omni Credit Card Master Trust, Series
1996-A, Class A, Callable, 6.65% due
09/15/03....................................... Aaa/AAA 204,428
60,000 Green Tree Financial Corp., Sequential Payer,
Series 1994-1, Class A4, Callable, 7.20% due
04/15/19....................................... Aa2/NA 61,542
200,000 Green Tree Home Improvement Loan Trust, Series
1997-E, Class HEA2, Callable, 6.39% due
01/15/29....................................... NR/AAA 200,218
20,000 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1996-A, Class
A1, Callable, 5.55% due 02/15/18............... Aaa/AAA 19,917
200,000 Morgan Stanley Capital I, Series 1997-RR, Class
D, Callable, 7.72% due 03/28/10................ NR/NR 193,031
77,972 Nationsbank Auto Owner Trust, Sequential Payer,
Series 1996-A, Class A2, Callable, 6.125% due
07/15/99....................................... Aaa/AAA 78,010
9,668 Premier Auto Trust, Sequential Payer, Series
1993-6, Class A2, Callable, 4.65% due
11/02/99....................................... Aaa/AAA 9,584
350,000 Premier Auto Trust, Sequential Payer, Series
1995-3, Class A5, Callable, 6.15% due
03/06/00....................................... Aaa/AAA 350,605
100,000 Safeco Capital Trust I, 8.072% due 07/15/37...... NA/NA 105,107
200,000 Sears Credit Account Master Trust, Series 1996-2,
Class A, Callable, 6.50% due 10/15/03.......... Aaa/AAA 201,444
100,000 The Money Store Home Equity Trust, Series 1997-B,
Class A3, Callable, 6.52% due 07/15/12......... Aaa/AAA 100,987
150,700 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-A, Class A1,
Callable, 6.30% due 06/25/02................... Aaa/AAA 150,863
89,117 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-B, Class A1,
Callable, 5.95% due 11/15/02................... Aaa/AAA 89,101
50,000 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1997-A, Class A2,
Callable, 6.75% due 06/25/03................... Aaa/AAA 50,871
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$2,434,344)................................ 2,443,706
------------

CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
10,000 Corporate Express Inc., Callable 07/01/99, 4.50%
due 07/01/00 (cost $8,770)..................... B3/B 8,762
------------
</TABLE>

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

31
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS (22.6%)
AEROSPACE (1.1%)
$ 50,000 Lockheed Martin Corp., 6.55% due 05/15/99........ A3/BBB+ $ 50,258
100,000 Northrop Grumman Corp., Callable 10/15/04, 9.375%
due 10/15/24................................... Baa3/BBB- 119,387
------------
169,645
------------

AUTOMOTIVE SUPPLIES (0.2%)
15,000 Exide Corp., Callable 04/15/00, 10.00% due
04/15/05....................................... B1/NR 15,900
15,000 Hayes Lemmerz International Inc., Series B,
Callable 07/15/02, 9.125% due 07/15/07......... NA/B 15,525
------------
31,425
------------

BANKING (0.6%)
50,000 Keycorp, 8.40% due 04/01/99...................... A2/BBB+ 51,323
50,000 Mellon Capital I, Series A, Callable 12/01/06,
7.72% due 12/01/26............................. A2/BBB+ 51,828
------------
103,151
------------

BROADCASTING & PUBLISHING (0.5%)
27,000 Capstar Broadcasting, Callable 02/01/02, 12.75%
due 02/01/09................................... NA/B- 19,170
40,000 Clear Channel Communication, Inc., Callable,
7.25% due 10/15/27............................. Baa3/BBB- 40,834
15,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07............................ Ba3/BB+ 16,462
------------
76,466
------------

BUILDING MATERIALS (0.1%)
15,000 Johns Manville International Group Inc., Callable
12/15/99, 10.875% due 12/15/04................. Ba3/BB- 16,612
------------

COMMERCIAL SERVICES (0.1%)
15,000 Vencor Inc., Callable 07/15/02, 8.625% due
07/15/07....................................... NA/B 15,000
------------

DIVERSIFIED MANUFACTURING (0.7%)
100,000 Eastman Chemical, 7.25% due 01/15/24............. A3/BBB+ 104,075
------------

ELECTRIC (1.1%)
15,000 Calpine Corp., Callable 07/15/02, (144A), 8.75%
due 07/15/07................................... Ba3/BB- 15,225
50,000 Pacific Corp., Series H, Callable, 6.75% due
07/15/04....................................... A2/A 50,821
100,000 Southern Co. Capital Trust I, Callable 02/01/07,
8.19% due 02/01/37............................. A3/A- 110,488
------------
176,534
------------
</TABLE>

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

32
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
ELECTRONICS (0.4%)
$ 50,000 Motorola Inc., 7.50% due 05/15/25................ Aa3/AA $ 56,016
------------

ENERGY SOURCE (0.7%)
100,000 NGC Corporation, 7.625% due 10/15/26............. Baa2/BBB+ 108,218
------------

ENTERTAINMENT, LEISURE & MEDIA (0.2%)
30,000 Fox/Liberty Networks LLC, Callable 08/15/02,
(144A), 8.875% due 08/15/07.................... B1/B 29,925
------------

FINANCIAL SERVICES (11.1%)
200,000 ABN Amro Bank NV (Chicago), 7.55% due 06/28/06... Aa2/AA- 214,098
45,000 Associates Corp. North America, 5.96% due
05/15/37....................................... Aa3/AA- 45,310
100,000 Banc One Corp., 7.625% due 10/15/26.............. A1/A+ 108,882
50,000 Chrysler Financial Corp., Series P, 6.32% due
07/14/99....................................... A3/A 50,228
50,000 First Union Institutional Capital I, Callable
12/01/06, 8.04% due 12/01/26................... a1/BBB+ 53,601
50,000 Fleet Capital Trust II, Callable 12/15/06, 7.92%
due 12/11/26................................... a2/BBB 53,017
135,000 Ford Motor Credit Co., 5.75% due 01/25/01........ A1/A 133,732
50,000 Ford Motor Credit Co., 6.375% due 09/15/99....... A1/A 50,299
300,000 Ford Motor Credit Corp., 7.47% due 07/29/99...... A1/A 306,651
50,000 General Motors Acceptance Corp., 5.90% due
03/06/00....................................... A3/A- 49,785
300,000 General Motors Acceptance Corp., 6.70% due
06/24/99....................................... A3/A- 302,436
50,000 Household Finance Co., 6.78% due 04/17/01........ A2/A 50,828
100,000 Nationsbank Corp., 7.25% due 10/15/25............ A2/A 104,803
200,000 Nationsbank Corp., Series E, 5.75% due
01/25/01....................................... A1/A+ 197,522
50,000 Sears Roebuck Acceptance Corp., Series 1, 6.22%
due 03/25/99................................... A2/A- 50,174
------------
1,771,366
------------

HEALTH SERVICES (0.3%)
25,000 Genesis Health Ventures, Inc., Callable 06/15/00,
9.75% due 06/15/05............................. B2/B- 25,875
10,000 Paracelsus Healthcare Corp., Callable 08/15/01,
10.00% due 08/15/06............................ B3/B- 10,250
15,000 Tenet Healthcare Corp., Callable 01/15/02, 8.625%
due 01/15/07................................... Ba3/B+ 15,498
------------
51,623
------------

NATURAL GAS (1.7%)
50,000 Atlantic Richfield Co., 8.25% due 02/01/22....... A2/A 58,868
200,000 Columbia Gas Systems, Series G, 7.62% due
11/28/25....................................... Baa1/BBB+ 208,778
------------
267,646
------------
</TABLE>

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

33
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
OIL-PRODUCTION (0.2%)
$ 15,000 Ocean Energy Inc., Series B, Callable 07/15/02,
8.875% due 07/15/07............................ B3/B- $ 16,013
15,000 Plains Resources Inc., Series D, Callable
03/15/01, 10.25% due 03/15/06.................. NA/B 16,125
------------
32,138
------------

PERSONAL CARE (0.3%)
50,000 Procter & Gamble Co., 6.45% due 01/15/26......... Aa2/AA 49,362
------------

POLLUTION CONTROL (0.0%)
5,000 Allied Waste North America Inc., Callable
12/01/01, 10.25% due 12/01/06.................. B2/B+ 5,469
------------

RETAIL (0.1%)
15,000 Proffitt's Inc., Series B, 8.125% due 05/15/04... Ba2/BB 15,338
------------

SPECIAL OBLIGATION (0.6%)
100,000 LasmoUSA Inc., 7.30% due 11/15/27................ Baa2/BBB 102,455
------------

TELECOMMUNICATION SERVICES (0.1%)
15,000 McLeodUSA, Inc., Callable 07/15/02, (144A), 9.25%
due 07/15/07................................... B3/B 15,675
8,000 Paging Network Inc., Callable 10/15/01, 10.00%
due 10/15/08................................... B2/B 8,300
------------
23,975
------------

TELECOMMUNICATIONS (0.3%)
30,000 Jacor Communications Co., Callable 06/15/02,
(144A), 8.75% due 06/15/07..................... B2/B 30,525
15,000 Qwest Communications International, Inc., Series
B, Callable 04/01/02, 10.875% due 04/01/07..... B2/B+ 16,913
------------
47,438
------------

TELEPHONE (0.8%)
100,000 Worldcom Inc., 7.75% due 04/01/27................ Ba1/BBB- 108,593
13,000 Worldcom Inc., Callable 01/15/99, 9.375% due
01/15/04....................................... Ba1/BBB- 13,845
------------
122,438
------------

TEXTILES (0.2%)
15,000 Polymer Group, Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07............................. B2/B 14,963
15,000 WestPoint Stevens Inc., Callable 12/15/98, 8.75%
due 12/15/01................................... Ba3/BB- 15,731
------------
30,694
------------
</TABLE>

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

34
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
TRANSPORTATION (0.1%)
$ 15,000 Atlantic Express Transportation Corp., Callable
02/01/01, (144A), 10.75% due 02/01/04.......... B2/B $ 15,900
------------

UTILITIES (1.1%)
175,000 Jersey Central Power & Light, Series C, 6.04% due
03/15/00....................................... Baa1/A- 174,521
------------
TOTAL CORPORATE OBLIGATIONS (COST
$3,519,192)................................ 3,597,430
------------
FOREIGN CORPORATE OBLIGATIONS (6.4%)
CANADA (2.3%)
BANKING
75,000 Canadian Imperial Bank, 6.20% due 08/01/00....... Aa3/AA- 75,224
------------

FINANCIAL SERVICES
200,000 McKesson Finance of Canada, (144A), 6.55% due
11/01/02....................................... A3/A 200,784
------------

FOOD, BEVERAGES & TOBACCO
25,000 Cott Corp., Callable 07/01/00, 8.50% due
05/01/07....................................... Ba3/B+ 25,344
------------

FOREST PRODUCTS & PAPER
6,000 Canadian Pacific Forest Products Ltd., 9.25% due
06/15/02....................................... Ba1/NR 6,447
------------

OIL PRODUCTION
50,000 Gulf Canada Resources Ltd., 8.25% due 03/15/17... Ba1/BB+ 54,294
------------
362,093
------------

CHINA (0.3%)
FINANCIAL SERVICES
50,000 Guangdong International Trust & Investment Corp.,
(144A), 8.75% due 10/24/16..................... Baa2/BBB- 50,875
------------

MALAYSIA (0.3%)
GAS EXPLORATION
50,000 Petroliam Nasional Berhad, (144A), 7.75% due
08/15/15....................................... A2/A 46,475
------------

MEXICO (0.3%)
BROADCASTING & PUBLISHING
15,000 Grupo Televisa, Series A, 11.375% due 05/15/03... Ba2/BB 16,388
------------
</TABLE>

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

35
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
FOREST PRODUCTS & PAPER
$ 35,000 Copamex Industrias S.A., Series B, Callable
04/30/02, 11.375% due 04/30/04................. NA/NA $ 38,500
------------
54,888
------------

NETHERLANDS (1.1%)
FINANCIAL SERVICES
175,000 IBM International Finance, Series E, 6.25% due
10/10/00....................................... A1/A 175,768
------------

NETHERLANDS ANTILLES (0.6%)
BANKING
100,000 Bank Tokyo Curacao Holdings, 6.406% due
09/29/49....................................... NR/NR 96,000
------------

PHILLIPINES (0.1%)
TELEPHONE
15,000 Philippine Long Distance Telephone, Series E,
7.85% due 03/06/07............................. Ba2/BB+ 13,047
------------

UNITED KINGDOM (1.3%)
BANKING
200,000 Midland Bank PLC, 7.625% due 06/15/06............ Aa3/A 214,606
------------

VENEZUELA (0.1%)
FINANCIAL SERVICES
15,000 CANTV Finance Ltd., 9.25% due 02/01/04........... Ba2/B+ 15,038
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$1,022,870)................................ 1,028,790
------------

SOVEREIGN BONDS (4.0%)
ARGENTINA (0.3%)
50,000 Republic of Argentina Global Bonds, 9.75% due
09/19/27....................................... Ba3/BB 48,000
------------

BRAZIL (0.3%)
57,013 Republic of Brazil C Bonds, Callable 04/15/98,
Sinking Fund, 8.00% due 04/15/14............... B1/BB- 44,613
------------

CANADA (1.5%)
175,000 Hydro-Quebec, Series HQ, 9.50% due 11/15/30...... A2/A+ 232,225
------------

ITALY (0.7%)
100,000 Republic of Italy, 6.875% due 09/27/23........... Aa3/AA 103,752
------------
</TABLE>

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

36
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
MEXICO (0.7%)
$ 50,000 Petroleos Mexicanos, (144A), 7.75% due
10/29/99....................................... Ba2/BB $ 50,250
50,000 United Mexican States Global Bonds, 11.50% due
05/15/26....................................... Ba2/BB 59,190
------------
109,440
------------

POLAND (0.1%)
15,000 Republic of Poland, (144A), Callable 04/27/98,
4.00%* due 10/27/14............................ Baa3/BBB- 12,975
------------

RUSSIA (0.4%)
75,000 Ministry of Finance Russia, (144A), 10.00% due
06/26/07....................................... Ba2/BB- 68,625
------------
TOTAL SOVEREIGN BONDS (COST $588,923)........ 619,630
------------

U.S. GOVERNMENT AGENCY OBLIGATIONS (25.3%)
FEDERAL HOME LOAN MORTGAGE CORP. (6.0%)
128,021 6.00% due 04/01/11............................... 126,155
310,000 6.50% due 09/15/23............................... 311,925
182,931 6.50% due 03/01/26............................... 180,954
133,048 7.00% due 02/01/26............................... 134,236
41,899 8.00% due 11/01/26............................... 43,343
155,128 8.50% due 08/01/26............................... 161,768
------------
958,381
------------

FEDERAL NATIONAL MORTGAGE ASSOCIATION (7.7%)
321,297 7.00% due 01/01/26............................... 323,578
368,112 7.00% due 04/01/26............................... 370,737
122,680 7.00% due 04/01/26............................... 123,552
92,659 8.50% due 05/01/09............................... 96,038
300,000 Remic: PAC-1(11), Series 1993-78, Class G, 6.50%
due 11/25/07................................... 303,855
------------
1,217,760
------------

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (11.6%)
119,437 6.50% due 12/15/23............................... 118,590
353,695 7.00% due 08/15/12............................... 360,316
184,388 7.00% due 03/15/26............................... 185,872
97,555 7.50% due 02/15/27............................... 99,958
316,800 7.50% due 04/15/27............................... 324,615
16,920 8.00% due 07/15/05............................... 17,489
23,351 8.00% due 11/15/06............................... 24,144
211,294 8.00% due 04/15/22............................... 218,626
241,205 9.00% due 06/15/16............................... 256,719
</TABLE>

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

37
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 88,960 9.00% due 09/15/17............................... $ 94,617
132,950 9.00% due 11/15/17............................... 143,830
------------
1,844,776
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $4,006,133).......................... 4,020,917
------------

U.S. TREASURY OBLIGATIONS (10.5%)
U.S. TREASURY BONDS (7.3%)
710,000 6.50% due 11/15/26(s)............................ 757,911
173,000 6.625% due 02/15/27.............................. 187,676
100,000 6.75% due 08/15/26............................... 110,125
75,000 7.125% due 02/15/23.............................. 85,609
15,000 10.375% due 11/15/12............................. 19,929
------------
1,161,250
------------

U.S. TREASURY NOTES (3.2%)
40,000 5.875% due 02/15/00.............................. 40,150
55,000 5.875% due 11/15/05.............................. 55,287
235,000 6.625% due 06/30/01.............................. 241,425
50,000 6.875% due 05/15/06.............................. 53,488
120,000 7.875% due 11/15/99.............................. 124,618
------------
514,968
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$1,618,118)................................ 1,676,218
------------
</TABLE>

<TABLE>
<CAPTION>
SHARES
- ------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.6%)
INDUSTRIAL PRODUCTS & SERVICES (0.6%)
100 Home Ownership Funding, (144A), 13.331% due
12/30/06 (cost $100,104)....................... Aaa/NA 97,566
------------
</TABLE>

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

38
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ------------ ------------------------------------------------- ------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (14.2%)
U.S. TREASURY OBLIGATIONS (14.2%)
$ 2,265,000 United States Treasury Bills, 5.195-5.30%, due
01/22/98 (cost $2,258,062)(s).................. $ 2,258,062
------------
TOTAL INVESTMENTS (COST $15,556,516) (99.1%)..... 15,751,081
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%)..... 148,044
------------
NET ASSETS (100.0%).............................. $ 15,899,125
------------
------------
</TABLE>

- ------------------------------
Note: For Federal Income Tax Purposes, the cost of securities at December 31,
1997, was substantially the same as the cost for financial statement purposes.
The aggregate gross unrealized appreciation and depreciation was $211,751 and
$13,488 respectively, resulting in net unrealized appreciation of $198,263.

* - Rate shown reflects current rate on variable rate instrument or instrument
with step coupon rates.

(s) - Security is fully or partially segregated as collateral for futures
contracts.

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

NA - Not Available.

NR - Not Rated.

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

39
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
COMMON STOCKS (97.2%)
BASIC INDUSTRIES (3.6%)
CHEMICALS (1.2%)
Albemarle Corp................................... 400 $ 9,550
Union Carbide Corp............................... 2,300 98,756
-----------
108,306
-----------

FOREST PRODUCTS & PAPER (1.3%)
Temple-Inland, Inc............................... 2,200 115,087
-----------

METALS & MINING (1.1%)
Allegheny Teledyne, Inc.......................... 3,700 95,737
-----------
TOTAL BASIC INDUSTRIES......................... 319,130
-----------

CONSUMER GOODS & SERVICES (23.0%)
AUTOMOTIVE (0.8%)
Goodyear Tire and Rubber Co...................... 1,100 69,987
-----------
BROADCASTING & PUBLISHING (4.0%)
Tele-Communications Inc., Series A+.............. 3,170 88,463
Tele-Communications TCI Ventures Group+.......... 5,830 165,244
U.S. West Media Group............................ 3,700 106,837
-----------
360,544
-----------

ENTERTAINMENT, LEISURE & MEDIA (1.5%)
International Game Technology.................... 3,500 88,375
Time Warner, Inc................................. 700 43,400
-----------
131,775
-----------

FOOD, BEVERAGES & TOBACCO (8.2%)
Anheuser Busch Companies, Inc.................... 3,900 171,600
General Mills, Inc............................... 1,800 128,925
PepsiCo, Inc..................................... 3,000 109,312
Philip Morris Companies, Inc..................... 3,900 176,719
Ralston-Ralston Purina Group..................... 1,500 139,406
-----------
725,962
-----------
HOUSEHOLD PRODUCTS (2.7%)
Procter & Gamble Co.............................. 3,000 239,437
-----------

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

RETAIL (4.7%)
Circuit City Stores, Inc......................... 3,100 $ 110,244
Federated Department Stores, Inc.+............... 2,100 90,431
Toys 'R' Us, Inc.+............................... 5,300 166,619
Wal-Mart Stores, Inc............................. 1,200 47,325
-----------
414,619
-----------

TEXTILES (1.1%)
Fruit of the Loom, Inc., Class A+................ 3,700 94,812
-----------
TOTAL CONSUMER GOODS & SERVICES................ 2,037,136
-----------

ENERGY (8.7%)
OIL-PRODUCTION (8.2%)
Atlantic Richfield Co............................ 1,400 112,175
Exxon Corp....................................... 3,100 189,681
Mobil Corp....................................... 2,200 158,812
Tosco Corp....................................... 7,100 268,469
-----------
729,137
-----------

OIL-SERVICES (0.5%)
Cooper Cameron Corp.+............................ 700 42,700
-----------
TOTAL ENERGY................................... 771,837
-----------

FINANCE (15.8%)
BANKING (6.8%)
Chase Manhattan Corp............................. 400 43,800
First Union Corp................................. 4,400 225,500
Fleet Financial Group, Inc....................... 1,300 97,419
Providian Financial Corp......................... 3,400 153,637
Washington Mutual, Inc........................... 1,400 89,294
-----------
609,650
-----------

FINANCIAL SERVICES (3.9%)
American Express Co.............................. 700 62,475
Federal National Mortgage Association............ 3,100 176,894
Travelers Group, Inc............................. 1,964 105,810
-----------
345,179
-----------

INSURANCE (2.7%)
AMBAC, Inc....................................... 1,900 87,400
Marsh & McLennan Companies, Inc.................. 2,000 149,125
-----------
236,525
-----------
</TABLE>

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

40
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (2.4%)
Equity Office Properties Trust................... 2,913 $ 91,929
Starwood Lodging Trust........................... 2,100 121,538
-----------
213,467
-----------
TOTAL FINANCE.................................. 1,404,821
-----------

HEALTHCARE (11.4%)
HEALTH SERVICES (3.0%)
Humana, Inc.+.................................... 3,900 80,925
United Healthcare Corp........................... 3,700 183,844
-----------
264,769
-----------
MEDICAL SUPPLIES (1.5%)
Bausch & Lomb, Inc............................... 3,300 130,763
-----------

PHARMACEUTICALS (6.9%)
Alza Corp.+...................................... 2,900 92,256
Bristol-Myers Squibb Co.......................... 1,800 170,325
Crescendo Pharmaceuticals Corp.+................. 145 1,677
Forest Laboratories, Inc.+....................... 1,000 49,313
Pfizer, Inc...................................... 1,100 82,019
Warner-Lambert Co................................ 1,800 223,200
-----------
618,790
-----------
TOTAL HEALTHCARE............................... 1,014,322
-----------
INDUSTRIAL PRODUCTS & SERVICES (8.1%)
BUILDING MATERIALS (0.4%)
Johns Manville Corp.............................. 3,600 36,225
-----------
DIVERSIFIED MANUFACTURING (5.2%)
AlliedSignal, Inc................................ 3,600 140,175
Cooper Industries, Inc........................... 3,200 156,800
Tyco International Ltd........................... 3,616 162,946
-----------
459,921
-----------

ELECTRICAL EQUIPMENT (0.7%)
Anixter International, Inc.+..................... 3,600 59,400
-----------

POLLUTION CONTROL (1.8%)
Waste Management, Inc............................ 5,900 162,250
-----------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 717,796
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>

TECHNOLOGY (15.8%)
AEROSPACE (1.6%)
Boeing Co........................................ 1,700 $ 83,194
Coltec Industries, Inc.+......................... 2,500 57,969
-----------
141,163
-----------

COMPUTER PERIPHERALS (1.8%)
EMC Corp.+....................................... 6,000 164,625
-----------

COMPUTER SOFTWARE (1.0%)
Autodesk, Inc.................................... 1,300 47,938
Oracle Corp.+.................................... 1,900 42,334
-----------
90,272
-----------

COMPUTER SYSTEMS (4.9%)
International Business Machines Corp............. 1,500 156,844
Nextlevel Systems, Inc.+......................... 6,900 123,338
Sun Microsystems, Inc.+.......................... 4,000 159,750
-----------
439,932
-----------

ELECTRONICS (5.9%)
Bay Networks, Inc.+.............................. 5,600 143,150
Cabletron Systems, Inc.+......................... 2,800 42,000
Motorola, Inc.................................... 2,200 125,538
Perkin-Elmer Corp................................ 1,700 120,806
Sensormatic Electronics Corp..................... 5,700 93,694
-----------
525,188
-----------

SEMICONDUCTORS (0.2%)
General Semiconductor, Inc.+..................... 1,775 20,523
-----------

TELECOMMUNICATIONS-EQUIPMENT (0.4%)
Commscope, Inc.+................................. 2,466 33,137
-----------
TOTAL TECHNOLOGY............................... 1,414,840
-----------

TRANSPORTATION (1.2%)
RAILROADS (1.2%)
CSX Corp......................................... 2,000 108,000
-----------

UTILITIES (9.6%)
ELECTRIC (2.3%)
Northern States Power Co......................... 1,000 58,250
Southern Co...................................... 3,300 85,388
Western Resources, Inc........................... 1,500 64,500
-----------
208,138
-----------
</TABLE>

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

41
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
GAS-PIPELINES (0.8%)
Enron Corp....................................... 1,700 $ 70,656
-----------

TELEPHONE (6.5%)
GTE Corp......................................... 2,800 146,300
SBC Communications, Inc.......................... 1,800 131,850
Sprint Corp...................................... 2,600 152,425
WorldCom, Inc.+.................................. 4,800 145,350
-----------
575,925
-----------
TOTAL UTILITIES................................ 854,719
-----------
TOTAL COMMON STOCKS (COST $7,671,682).......... 8,642,601
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.4%)
OTHER INVESTMENT COMPANIES (0.1%)
Seven Seas Money Market Fund, 5.62% due
01/02/98....................................... $ 8,343 8,343
-----------

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

U.S. TREASURY OBLIGATIONS (5.3%)
U. S. Treasury Bills, 5.15% due 01/22/98......... $ 470,000 $ 468,558
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $476,901)... 476,901
-----------
TOTAL INVESTMENTS (COST $8,148,583) (102.6%)....................
9,119,502
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.6%)...................
(227,190)
-----------
NET ASSETS (100.0%)............................................. $ 8,892,312
-----------
-----------
</TABLE>

- ------------------------------
Note: Based on the cost of securities of $8,160,897 for Federal Income Tax
purposes at December 31, 1997, the aggregate gross unrealized appreciation and
depreciation was $1,136,114 and $177,509, respectively, resulting in net
unrealized appreciation of $958,605.

+ Non-income producing security.

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

42
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
COMMON STOCKS (96.1%)
BASIC INDUSTRIES (11.4%)
AGRICULTURE (3.0%)
Dekalb Genetics Corp., Class B................... 4,000 $ 157,000
-----------
CHEMICALS (1.3%)
Bush Boake Allen, Inc.+.......................... 700 18,331
General Chemical Group, Inc...................... 300 8,025
Geon Co.......................................... 700 16,362
Georgia Gulf Corp................................ 200 6,125
Minerals Technologies, Inc....................... 300 13,631
OM Group, Inc.................................... 150 5,494
-----------
67,968
-----------

FOREST PRODUCTS & PAPER (2.1%)
American Pad & Paper Co.+........................ 3,900 37,537
Caraustar Industries, Inc........................ 1,700 58,650
Universal Forest Products, Inc.+................. 1,000 13,812
-----------
109,999
-----------

METALS & MINING (5.0%)
Commercial Metals Co............................. 3,500 110,469
Mueller Industries, Inc.+........................ 1,000 59,000
Schnitzer Steel Industries, Inc., Class A........ 1,600 45,100
Steel Technologies, Inc.......................... 3,700 44,169
-----------
258,738
-----------
TOTAL BASIC INDUSTRIES......................... 593,705
-----------
CONSUMER GOODS & SERVICES (12.3%)
APPARELS & TEXTILES (0.5%)
Ashworth, Inc.+.................................. 1,900 21,019
Tropical Sportswear International Corp.+......... 300 3,056
-----------
24,075
-----------

AUTOMOTIVE (0.6%)
Amcast Industrial Corp........................... 1,100 25,231
Sonic Automotive, Inc.+.......................... 500 4,812
-----------
30,043
-----------

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

BROADCASTING & PUBLISHING (0.7%)
Banta Corp....................................... 600 $ 16,387
Digital Generation Systems, Inc.+................ 300 731
PRIMEDIA, Inc.+.................................. 1,600 20,200
-----------
37,318
-----------

EDUCATION (0.3%)
Education Management Corp.+...................... 300 9,394
Youth Services International, Inc.+.............. 500 7,672
-----------
17,066
-----------

ENTERTAINMENT, LEISURE & MEDIA (1.1%)
Cinar Films Inc., Class B+....................... 100 3,862
Imax Corp.+...................................... 1,600 34,800
Steiner Leisure, Ltd.*+.......................... 600 18,450
-----------
57,112
-----------

FOOD, BEVERAGES & TOBACCO (0.1%)
American Italian Pasta Co., Class A+............. 100 2,500
Beringer Wine Estates Holdings, Inc., Class B+... 100 3,800
-----------
6,300
-----------

HOUSEHOLD APPLIANCES & FURNISHINGS (2.1%)
Aaron Rents, Inc................................. 1,800 34,875
Bush Industries, Inc., Class A................... 2,300 59,800
LADD Furniture, Inc.+............................ 300 4,519
Royal Appliance Manufacturing Co.+............... 300 1,987
Stanley Furniture Co., Inc.+..................... 300 8,494
-----------
109,675
-----------

RESTAURANTS & HOTELS (1.6%)
Applebee's International, Inc.................... 300 5,409
Candlewood Hotel Company, Inc.+.................. 1,900 16,744
Extended Stay America, Inc.+..................... 700 8,706
Friendly Ice Cream Corp.+........................ 300 3,469
Papa John's International, Inc.+................. 1,000 34,937
Showbiz Pizza Time, Inc.+........................ 600 13,875
-----------
83,140
-----------

RETAIL (5.2%)
Central Garden & Pet Co.+........................ 400 10,550
Charming Shoppes, Inc.+.......................... 1,600 7,450
CML Group, Inc.+................................. 700 2,319
</TABLE>

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

43
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
RETAIL (CONTINUED)
Delia's, Inc.+................................... 700 $ 15,487
Garden Ridge Corp.+.............................. 4,300 61,544
Gymboree Corp.+.................................. 900 24,694
Lazare Kaplan International, Inc.+............... 600 8,100
Let's Talk Cellular & Wireless, Inc.+............ 300 3,112
Lithia Motors, Inc., Class A+.................... 600 8,587
N2K, Inc.+....................................... 100 1,450
One Price Clothing Stores, Inc.+................. 2,700 4,177
ONSALE, Inc.+.................................... 600 10,800
Pacific Sunwear of California+................... 200 5,950
Party City Corp.+................................ 1,100 35,269
Penn Traffic Co.+................................ 600 4,950
ShopKo Stores, Inc.+............................. 200 4,350
The Sports Authority, Inc.+...................... 400 5,900
Toymax International, Inc.+...................... 200 1,712
Urban Outfitters, Inc.+.......................... 2,800 51,450
USA Floral Products, Inc.+....................... 100 1,587
-----------
269,438
-----------

TEXTILES (0.1%)
Worldtex, Inc.+.................................. 400 3,175
-----------
TOTAL CONSUMER GOODS & SERVICES................ 637,342
-----------

ENERGY (3.7%)
GAS EXPLORATION (1.4%)
Newfield Exploration Co.+........................ 1,800 41,962
Ocean Energy, Inc.+.............................. 200 9,862
Patterson Energy, Inc.+.......................... 600 23,306
-----------
75,130
-----------

OIL-PRODUCTION (0.8%)
Plains Resources, Inc.+.......................... 1,100 18,906
Snyder Oil Corp.................................. 700 12,775
Vintage Petroleum, Inc........................... 500 9,500
-----------
41,181
-----------
OIL-SERVICES (1.5%)
Bayard Drilling Technologies, Inc.+.............. 100 1,625
Hanover Compressor Co.+.......................... 500 10,219
Input/Output, Inc.+.............................. 1,500 44,531
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
OIL-SERVICES (CONTINUED)

IRI International Corp.+......................... 300 $ 4,200
Seacor Smit, Inc.+............................... 300 18,075
-----------
78,650
-----------
TOTAL ENERGY................................... 194,961
-----------

FINANCE (22.3%)
BANKING (8.6%)
Bank United Corp., Class A....................... 1,200 59,025
Banknorth Group, Inc............................. 600 38,737
BankUnited Financial Corp., Class A+............. 200 3,087
Colonial BancGroup, Inc.......................... 900 30,994
Commercial Federal Corp.......................... 450 16,003
Community First Bankshares, Inc.................. 200 10,725
First Hawaiian, Inc.............................. 300 12,056
First Republic Bank+............................. 400 12,775
FirstFed Financial Corp.+........................ 700 27,125
Flagstar Bancorp, Inc............................ 700 13,759
GBC Bancorp...................................... 900 57,150
Hamilton Bancorp, Inc.+.......................... 200 5,825
HUBCO, Inc....................................... 1,472 57,684
InterWest Bancorp, Inc........................... 200 7,675
Irwin Financial Corp............................. 400 16,975
National Commerce Bancorporation................. 1,000 35,000
Security First Network Bank+..................... 100 737
Sun Bancorp, Inc.+............................... 100 3,237
Trustco Bank Corp................................ 1,365 37,708
-----------
446,277
-----------

FINANCIAL SERVICES (1.6%)
Amresco, Inc.+................................... 500 14,969
First Alliance Corp.+............................ 300 5,550
Hanover Capital Mortgage Holdings, Inc........... 200 3,300
IMH Commercial Holdings, Inc..................... 200 3,550
Litchfield Financial Corp........................ 705 13,263
Ocwen Financial Corp.+........................... 600 15,262
WFS Financial, Inc.+............................. 700 8,116
Willis Lease Finance Corp.+...................... 1,100 19,112
-----------
83,122
-----------
</TABLE>

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

44
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
INSURANCE (5.2%)
Capital Re Corp.................................. 2,800 $ 173,775
Nationwide Financial Services, Inc............... 400 14,450
RenaissanceRe Holdings, Ltd.*+................... 1,900 83,837
-----------
272,062
-----------

REAL ESTATE INVESTMENT TRUSTS (6.9%)
American General Hospitality Corp................ 700 18,725
American Residential Investment Trust, Inc....... 200 2,375
Arden Realty Group, Inc.......................... 1,200 36,900
Brandywine Realty Trust.......................... 500 12,562
Burnham Pacific Properties, Inc.................. 700 10,719
Developers Diversified Realty Corp............... 500 19,125
Entertainment Properties Trust+.................. 500 9,687
Gables Residential Trust......................... 1,900 52,487
Innkeepers USA Trust............................. 300 4,650
Manufactured Home Communities, Inc............... 500 13,500
National Golf Properties, Inc.................... 400 13,125
Oasis Residential, Inc........................... 1,500 33,469
Post Properties, Inc............................. 969 39,366
Price REIT, Inc.................................. 500 20,469
Sunstone Hotel Investors, Inc.................... 500 8,625
Tower Realty Trust, Inc.+........................ 400 9,850
TriNet Corporate Realty Trust, Inc............... 300 11,606
Urban Shopping Centers, Inc...................... 300 10,462
Weeks Corp....................................... 800 25,600
Westfield America, Inc........................... 400 6,800
-----------
360,102
-----------
TOTAL FINANCE.................................. 1,161,563
-----------

HEALTHCARE (10.7%)
BIOTECHNOLOGY (3.1%)
Applied Analytical Industries, Inc.+............. 700 11,812
ArQule, Inc.+.................................... 300 6,909
Cor Therapeutics, Inc.+.......................... 200 4,512
Human Genome Sciences, Inc.+..................... 1,100 43,862
Hyseq, Inc.+..................................... 100 944
Incyte Pharmaceuticals, Inc.+.................... 1,000 44,625
Millennium Pharmaceuticals, Inc.+................ 400 7,675
Novoste Corp.+................................... 200 4,475
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
BIOTECHNOLOGY (CONTINUED)

SangStat Medical Corp.+.......................... 800 $ 32,450
Synaptic Pharmaceutical Corp.+................... 100 1,062
Vical, Inc.+..................................... 400 4,825
-----------
163,151
-----------

HEALTH SERVICES (3.9%)
Alternative Living Services, Inc.+............... 760 22,467
Lifeline Systems, Inc.+.......................... 700 17,456
Mariner Health Group, Inc.+...................... 3,600 58,725
Paracelsus Healthcare Corp.+..................... 500 1,687
Pediatrix Medical Group, Inc.+................... 300 12,825
ProMedCo Management Co.+......................... 400 4,025
Renal Care Group Inc............................. 200 6,425
Renal Treatment Centers, Inc.+................... 200 7,225
Sierra Health Services, Inc.+.................... 1,400 47,075
Summit Care Corp.+............................... 850 14,131
Sunrise Assisted Living, Inc.+................... 200 8,575
-----------
200,616
-----------

MEDICAL SUPPLIES (3.4%)
AutoCyte, Inc.+.................................. 500 3,594
Cardiac Pathways Corp.+.......................... 300 2,044
Closure Medical Corp.+........................... 300 7,744
Computer Motion, Inc.+........................... 300 3,112
Conceptus, Inc.+................................. 300 1,537
CONMED Corp.+.................................... 400 10,550
Eclipse Surgical Technologies+................... 1,100 6,394
Endocardial Solutions, Inc.+..................... 400 3,950
Focal, Inc.+..................................... 200 2,162
Heartstream, Inc.+............................... 1,100 11,791
Henry Schein, Inc.+.............................. 200 7,025
Kensey Nash Corp.+............................... 2,000 33,125
Medi-Ject Corp.+................................. 2,100 4,266
Physio-Control International Corp.+.............. 300 4,762
ResMed, Inc.+.................................... 300 8,437
Sola International, Inc.+........................ 500 16,250
Urologix, Inc.+.................................. 200 3,637
Ventana Medical Systems, Inc.+................... 2,900 44,406
-----------
174,786
-----------
</TABLE>

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

45
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
PHARMACEUTICALS (0.3%)
Kos Pharmaceuticals, Inc.+....................... 900 $ 13,866
Ligand Pharmaceuticals, Class B+................. 300 3,881
-----------
17,747
-----------
TOTAL HEALTHCARE............................... 556,300
-----------
INDUSTRIAL PRODUCTS & SERVICES (13.0%)
BUILDING MATERIALS (1.0%)
American Residential Services, Inc.+............. 1,400 21,875
Comfort Systems USA, Inc.+....................... 500 9,875
Service Experts, Inc.+........................... 700 20,037
-----------
51,787
-----------
CAPITAL GOODS (5.0%)
ABC Rail Products Corp.+......................... 300 6,038
Applied Power, Inc., Class A..................... 500 34,500
Collins & Aikman Corp.+.......................... 2,600 22,425
IDEX Corp........................................ 850 29,644
MagneTek, Inc.+.................................. 3,100 60,450
Modine Manufacturing Co.......................... 400 13,738
Shaw Group, Inc.+................................ 800 18,400
Wabash National Corp............................. 2,600 73,938
-----------
259,133
-----------

COMMERCIAL SERVICES (1.0%)
Equity Corp. International+...................... 500 11,563
Hospitality Worldwide Services+.................. 100 1,313
Perceptron, Inc.+................................ 700 14,919
Pinkertons, Inc.+................................ 600 14,100
Wackenhut Corrections Corp.+..................... 300 8,063
-----------
49,958
-----------

CONSTRUCTION & HOUSING (2.8%)
D.R. Horton, Inc................................. 8,254 143,413
-----------

DIVERSIFIED MANUFACTURING (2.0%)
Brady (W.H.) Co.................................. 600 18,825
Intermet Corp.................................... 4,700 82,544
-----------
101,369
-----------

MACHINERY (0.0%)
Middleby Corp.+.................................. 200 1,581
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>

MANUFACTURING (0.1%)
Rock of Ages Corp.+.............................. 300 $ 4,650
-----------

POLLUTION CONTROL (1.1%)
American Disposal Services, Inc.+................ 500 18,281
Sevenson Environmental Services, Inc............. 960 11,280
Tetra Technologies, Inc.+........................ 1,400 29,488
-----------
59,049
-----------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 670,940
-----------

TECHNOLOGY (10.9%)
AEROSPACE (1.2%)
Orbital Sciences Corp.+.......................... 2,050 61,116
-----------

COMPUTER PERIPHERALS (1.9%)
Bolder Technologies Corp.+....................... 400 3,750
HMT Technology Corp.+............................ 1,500 19,547
Hypercom Corp.+.................................. 700 9,888
In Focus Systems, Inc.+.......................... 500 15,344
Pinnacle Systems, Inc.+.......................... 800 19,750
Proxim, Inc.+.................................... 500 5,672
Radiant Systems, Inc.+........................... 400 11,425
Raster Graphics, Inc.+........................... 600 2,719
SanDisk Corp.+................................... 200 4,019
SCM Microsystems, Inc.+.......................... 300 7,144
-----------
99,258
-----------

COMPUTER SOFTWARE (3.8%)
Aspect Development, Inc.+........................ 200 10,425
Aspen Technologies, Inc.+........................ 600 20,438
Checkfree Corp.+................................. 1,100 29,906
Cognicase, Inc.+................................. 100 1,203
Edify Corp.+..................................... 1,800 33,750
Integrated Systems, Inc.+........................ 400 5,550
MAPICS, Inc.+.................................... 1,000 10,875
MathSoft, Inc.+.................................. 250 672
Metromail Corp.+................................. 1,100 19,663
Remedy Corp.+.................................... 500 10,531
Transaction Systems Architects, Inc., Class A+... 900 34,144
Tripos, Inc.+.................................... 600 8,663
</TABLE>

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

46
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
Viasoft, Inc.+................................... 100 $ 4,231
Visigenic Software, Inc.+........................ 1,000 5,656
-----------
195,707
-----------
COMPUTER SYSTEMS (0.4%)
Avid Technology, Inc.+........................... 600 16,088
Bell & Howell Co.+............................... 100 2,419
-----------
18,507
-----------

ELECTRONICS (0.4%)
Itron, Inc.+..................................... 600 10,913
Quickturn Design System, Inc..................... 900 10,463
-----------
21,376
-----------
INFORMATION PROCESSING (1.3%)
Computer Horizons Corp.+......................... 100 4,575
CSG Systems International, Inc.+................. 200 8,038
International Network Services+.................. 1,100 25,300
Metro Information Services, Inc.+................ 600 16,838
Sapient Corp.+................................... 200 12,325
-----------
67,076
-----------

SEMICONDUCTORS (1.9%)
8 x 8, Inc.+..................................... 1,400 15,225
Alliance Semiconductor Corp.+.................... 1,100 5,122
ATMI, Inc.+...................................... 700 16,844
Exar Corp.+...................................... 300 4,988
Galileo Technology Ltd.*+........................ 200 5,863
Integrated Device Technology, Inc.+.............. 2,400 22,650
Integrated Silicon Solution, Inc.+............... 800 6,150
SDL, Inc.+....................................... 1,100 15,881
SIPEX Corp.+..................................... 200 6,063
-----------
98,786
-----------
TOTAL TECHNOLOGY............................... 561,826
-----------
TRANSPORTATION (1.9%)
AIRLINES (0.3%)
ASA Holdings, Inc................................ 600 17,081
-----------

RAILROADS (0.5%)
Genesee & Wyoming Inc., Class A+................. 1,100 26,538
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>

TRUCK & FREIGHT CARRIERS (1.1%)
Allied Holdings, Inc.+........................... 700 $ 13,169
American Freightways Corp.+...................... 700 7,000
Jevic Transportation, Inc.+...................... 100 1,613
Motor Cargo Industries, Inc.+.................... 300 3,675
Werner Enterprises, Inc.......................... 1,400 29,050
-----------
54,507
-----------
TOTAL TRANSPORTATION........................... 98,126
-----------

UTILITIES (6.7%)
ELECTRIC (3.0%)
Central Hudson Gas & Electric Corp............... 1,300 57,038
Central Louisiana Electric Co.................... 2,500 80,938
Otter Tail Power Co.............................. 500 19,063
-----------
157,039
-----------

NATURAL GAS (1.4%)
Atmos Energy Corp................................ 800 24,200
Wicor, Inc....................................... 1,000 46,438
-----------
70,638
-----------

TELEPHONE (1.4%)
American Communications Services, Inc.+.......... 600 7,763
ICG Communications, Inc.+........................ 300 8,231
Intermedia Communications, Inc.+................. 400 24,275
ITC DeltaCom, Inc.+.............................. 100 1,638
NEXTLINK Communications, Inc., Class A+.......... 100 2,141
Omnipoint Corp.+................................. 1,300 30,306
-----------
74,354
-----------

WATER (0.9%)
</TABLE>

E'Town Corp...................................... 700 28,131
SJW Corp......................................... 100 6,050
Southern California Water Co..................... 600 15,075
-----------
49,256
-----------
TOTAL UTILITIES................................ 351,287
-----------

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

47
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C> <C>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
TELECOMMUNICATIONS (3.2%)
TELECOMMUNICATION SERVICES (1.5%)
Concentric Network Corp.+........................ 1,200 $ 10,500
Metronet Communications Corp.+................... 200 3,394
Mobile Telecommunication Technologies Corp.+..... 1,100 24,338
Premiere Technologies, Inc.+..................... 1,500 41,344
-----------
79,576
-----------

TELECOMMUNICATIONS-EQUIPMENT (1.7%)
Antec Corp.+..................................... 200 3,150
Aspect Telecommunications Corp.+................. 800 16,800
Excel Switching Corp.+........................... 600 10,763
Glenayre Technologies, Inc.+..................... 1,600 15,900
Natural Microsystems Corp.+...................... 500 23,156
P-COM, Inc.+..................................... 1,000 17,500
-----------
87,269
-----------
TOTAL TELECOMMUNICATIONS....................... 166,845
-----------
TOTAL COMMON STOCKS (COST $4,166,643).......... 4,992,895
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.7%)
OTHER INVESTMENT COMPANIES (0.1%)
Seven Seas Money Market Fund, 5.62% due
01/02/98....................................... $ 7,547 7,547
-----------

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

U.S. TREASURY OBLIGATIONS (3.6%)
U.S. Treasury Bills, 5.15 - 5.17% due 01/22/98... $185,000 $ 184,445
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $191,992)... 191,992
-----------
TOTAL INVESTMENTS
(COST $4,358,635) (99.8%)................................. 5,184,887
OTHER ASSETS IN EXCESS OF LIABILITIES (0.2%)................
10,958
-----------
NET ASSETS (100.0%)......................................... $ 5,195,845
-----------
-----------
</TABLE>

- ------------------------------
Note: Based on the cost of securities of $4,377,435 for Federal Income Tax
purposes at December 31, 1997, the aggregate gross unrealized appreciation and
depreciation was $1,031,647 and $224,195 respectively, resulting in net
unrealized appreciation of $807,452.

+ Non-income producing security.

* Foreign security.

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

48
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
COMMON STOCK (92.0%)
ARGENTINA (1.2%)
Telecom Argentina Stet - France Telecom SA (Spon.
ADR) (Telecommunication Services).............. 1,400 $ 50,050
YPF Sociedad Anonima (Spon. ADR)
(Oil-Production)............................... 1,000 34,187
-----------
84,237
-----------

AUSTRALIA (4.6%)
Amcor Ltd. (Packaging & Containers).............. 3,300 14,514
Broken Hill Proprietary Company Ltd. (Metals &
Mining)........................................ 2,040 18,941
CSR Ltd. (Building Materials).................... 10,200 34,559
E-mail Ltd. (Manufacturing)...................... 6,500 15,348
Fosters Brewing Group Ltd. (Food, Beverages &
Tobacco)....................................... 10,400 19,787
Mayne Nickless Ltd. (Commercial Services)........ 5,000 26,421
National Australia Bank Ltd. (Banking)........... 1,400 19,548
North Ltd. (Metals & Mining)..................... 15,266 40,205
Rio Tinto Ltd. (Metals & Mining)................. 2,400 27,996
Southcorp Holding Ltd. (Food, Beverages &
Tobacco)....................................... 7,600 25,156
Telstra Corp. Ltd. (Installment Receipts)
(Telecommunication Services)+.................. 5,100 10,766
Westpac Banking Corporation Ltd. (Banking)....... 3,428 21,925
WMC Ltd. (Metals & Mining)....................... 9,800 34,162
-----------
309,328
-----------
BELGIUM (1.3%)
Algemene Maatschappij voor Nijverheidskredit NV
(Financial Services)........................... 600 30,283
Arbed SA (Metals & Mining)....................... 105 11,478
Groupe Bruxelles Lambert SA (Multi - Industry)... 162 23,436
PetroFina SA (Oil-Production).................... 55 20,300
-----------
85,497
-----------

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

BRAZIL (1.4%)
Companhia Energetica de Minas Gerais SA (Spon.
ADR) (Telecommunications)...................... 700 $ 29,750
Companhia Paranaense de Energia - Copel
(Electric)..................................... 1,400,000 15,681
Iochpe-Maxion SA (Spon. ADR) (Diversified
Manufacturing)+................................ 8,800 17,600
Makro Atacadista SA (Spon. ADR) (Retail)+........ 1,400 11,200
Votorantim Celulose e Papel SA (ADR) (Forest
Products & Paper).............................. 2,400 23,118
-----------
97,349
-----------

CANADA (2.9%)
Magna International Inc. (Class A) (Automotive
Supplies)...................................... 800 50,090
National Bank of Canada (Banking)................ 3,500 57,721
Potash Corp. of Saskatchewan Inc. (Chemicals).... 1,100 91,512
-----------
199,323
-----------

CHILE (1.1%)
Compania de Telecomunicaciones de Chile SA (Spon.
ADR) (Telecommunication Services).............. 1,000 29,875
Empresa Nacional de Electricidad SA (Spon. ADR)
(Utilities).................................... 2,600 45,987
-----------
75,862
-----------

CHINA (0.3%)
Zhenhai Refining & Chemical Co. Ltd. (Series H)
(Chemicals).................................... 43,600 18,147
-----------

CZECH REPUBLIC (0.9%)
Central European Media Enterprises Ltd. (A
Shares) (Entertainment, Leisure & Media)+...... 2,300 58,075
-----------

FINLAND (0.6%)
UPM-Kymmene Corp. (Forest Products & Paper)...... 1,900 38,032
-----------
</TABLE>

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

49
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
FRANCE (8.3%)
Carrefour Supermarche SA (Retail)................ 36 $ 18,790
Compagnie de Saint Gobain SA (Building
Materials)..................................... 185 26,293
Compagnie Financiere de Paribas (Financial
Services)...................................... 600 52,162
Compagnie Generale des Eaux (Utilities).......... 652 91,039
Dexia France (Financial Services)................ 300 34,758
Elf Aquitaine SA (Oil-Services).................. 299 34,791
Eridania - Beghin Say SA (Food, Beverages &
Tobacco)....................................... 150 23,463
France Telecom SA (Telecommunication
Services)+..................................... 720 26,127
L'Air Liquide SA (Chemicals)..................... 147 23,018
Lagardere S.C.A. (Multi - Industry).............. 610 20,178
Montupet (Automotive Supplies)................... 70 7,854
PSA Peugeot Citroen (Automotive)................. 90 11,355
Sanofi SA (Pharmaceuticals)...................... 240 26,729
Schneider SA (Electronics)....................... 288 15,645
SEITA (Food, Beverages & Tobacco)................ 690 24,774
SGS Thomson Microelectronics NV (Electronics)+... 263 16,285
Societe Generale (Banking)....................... 153 20,855
Synthelabo (Pharmaceuticals)..................... 180 22,501
Total SA (B Shares) (Oil-Services)............... 225 24,498
Union des Assurances Federales (Insurance)....... 175 22,981
Usinor Sacilor SA (Metals & Mining).............. 1,253 18,100
-----------
562,196
-----------

GERMANY (10.1%)
Bayer AG (Chemicals)............................. 1,010 37,748
Bilfinger & Berger Bau AG (Construction &
Housing)....................................... 440 13,655
Continental AG (Automotive)...................... 1,500 33,119
Deutsche Bank AG (Banking)....................... 970 68,513
Deutsche Pfandbrief-und Hypothekenbank AG
(Banking)...................................... 200 11,857
Douglas Holding AG (Retail)...................... 350 10,570
Dresdner Bank AG (Banking)....................... 640 29,543
Hannover Rueckversicherungs AG (Insurance)....... 452 42,233
Henkel KGAA (Chemicals).......................... 340 19,099
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
GERMANY (CONTINUED)
Lufthansa AG (Airlines).......................... 2,600 $ 49,888
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance).................................... 302 113,877
SAP AG (Computer Software)....................... 190 57,749
Schering AG (Pharmaceuticals).................... 203 19,588
SGL Carbon AG (Chemicals)........................ 96 12,387
Siemens AG (Electrical Equipment)................ 1,130 66,931
SKW Trostberg AG (Chemicals)..................... 440 13,973
VEBA AG (Utilities).............................. 1,210 82,437
-----------
683,167
-----------

HONG KONG (0.8%)
Bank of East Asia Ltd. (Banking)................. 40 94
Guangdong Kelon Electrical Holdings Co. Ltd.
(Appliances & Household Durables).............. 19,000 19,495
Hong Kong Electric Holdings Ltd. (Electric)...... 3,000 11,403
HSBC Holdings PLC (Banking)...................... 400 9,860
Hutchison Whampoa Ltd. (Multi - Industry)........ 2,000 12,545
-----------
53,397
-----------

INDIA (1.5%)
EIH Ltd. (GDR) (Restaurants & Hotels)............ 1,700 22,695
Hindalco Industries Ltd. (GDR) (Metals &
Mining)+....................................... 600 12,000
Reliance Industries Ltd. (GDR) (Chemicals)....... 3,100 26,660
Tata Engineering & Locomotive Co. Ltd. (Spon.
GDR) (Automotive).............................. 1,600 13,320
Wockhardt Ltd. (GDR) (Pharmaceuticals)+.......... 5,300 26,500
-----------
101,175
-----------

INDONESIA (0.4%)
P.T. Matahari Putra Prima (Retail)............... 250,000 20,474
P.T. Semen Cibinong (Building Materials)......... 84,000 3,822
-----------
24,296
-----------
</TABLE>

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

50
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
IRELAND (2.3%)
Allied Irish Banks PLC (Banking)................. 3,000 $ 29,077
Bank of Ireland PLC (Banking).................... 1,700 26,218
CRH PLC (Building Materials)..................... 1,200 14,059
Greencore Group PLC (Food, Beverages &
Tobacco)....................................... 2,400 11,289
Irish Life PLC (Insurance)....................... 4,000 22,976
Jefferson Smurfit Group PLC (Forest Products &
Paper)......................................... 11,700 33,019
Waterford Wedgwood PLC (Household Products)...... 17,000 23,019
-----------
159,657
-----------

ISRAEL (0.4%)
Teva Pharmaceutical Industries Ltd. (ADR)
(Pharmaceuticals).............................. 600 28,387
-----------

ITALY (4.2%)
ENI SPA (Oil-Services)........................... 11,000 62,404
Istituto Mobiliare Italiano SPA (Financial
Services)...................................... 4,000 47,511
Istituto Nazionale Delle Assicurazioni
(Insurance).................................... 43,000 87,192
Telecom Italia SPA - RNC (Telecommunication
Services)...................................... 20,000 88,235
-----------
285,342
-----------

JAPAN (9.2%)
Bridgestone Corp., Japan (Chemicals)............. 2,000 43,531
Canon Inc. (Electronics)......................... 1,000 23,381
DDI Corp. (Telecommunications)................... 3 7,960
Fanuc Ltd. (Machinery)........................... 1,000 37,994
Fuji Photo Film Co. Ltd. (Electronics)........... 1,000 38,455
Fujitsu Ltd. (Computer Systems).................. 3,000 32,302
Hitachi Ltd. (Electrical Equipment).............. 2,000 14,305
Ishihara Sangyo Kaisha Ltd. (Chemicals)+......... 3,000 3,346
Japan Tobacco, Inc. (Food, Beverages &
Tobacco)....................................... 2 14,244
Marubeni Corp. (Multi - Industry)................ 6,000 10,568
Mitsubishi Corp. (Wholesale & International
Trade)......................................... 1,000 7,922
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
JAPAN (CONTINUED)
Mitsubishi Rayon Co. Ltd. (Textiles)............. 4,000 $ 9,845
Mitsui Trust & Banking Co. Ltd. (Banking)........ 6,000 11,675
Nichiei Co. Ltd. (Building Materials)............ 200 21,381
Nippon Steel Corp. (Metals & Mining)............. 7,000 10,391
Nippon Telegraph & Telephone Corp.
(Telecommunications)........................... 4 34,456
Nishimatsu Construction Co. Ltd. (Construction &
Housing)....................................... 2,000 6,307
Nissan Motor Co. Ltd. (Automotive)............... 2,000 8,306
Nomura Securities Co. Ltd. (Financial
Services)...................................... 1,000 13,382
Pioneer Electronic Corp. (Electronics)........... 1,000 15,459
Promise Co. Ltd. (Financial Services)............ 200 11,137
Ricoh Corp. Ltd. (Electrical Equipment).......... 1,000 12,460
Sekisui Chemical Co. Ltd. (Chemicals)............ 1,000 5,099
Shin-Etsu Chemical Co. Ltd. (Chemicals).......... 1,000 19,151
Sony Corp. (Electronics)......................... 400 35,687
Sumitomo Forestry Co. Ltd. (Forest Products &
Paper)......................................... 1,000 4,915
Takeda Chemical Industries Ltd. (Chemicals)...... 1,000 28,611
The Bank of Tokyo - Mitsubishi Ltd. (Banking).... 3,000 41,532
Toppan Printing Co. Ltd. (Broadcasting &
Publishing).................................... 1,000 13,075
Tostem Corp. (Construction & Housing)............ 1,000 10,767
Toyota Motor Corp. Ltd. (Automotive)............. 2,000 57,529
Yamanouchi Pharmaceutical Co. Ltd.
(Pharmaceuticals).............................. 1,000 21,535
-----------
626,708
-----------

MALAYSIA (0.0%)*
Gamuda Berhad (Construction & Housing)........... 6,000 3,330
-----------
</TABLE>

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

51
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
MEXICO (1.7%)
Cemex SA de CV (Building Materials)+............. 7,200 $ 38,493
Grupo Financiero Banamex Accival SA de CV (Class
B) (Banking)+.................................. 11,000 32,952
Telefonos de Mexico SA de CV (Spon. ADR) (Class
L) (Telecommunications)........................ 821 46,027
-----------
117,472
-----------

NETHERLANDS (2.1%)
Aegon NV (Insurance)............................. 140 12,465
ING Groep NV (Financial Services)................ 495 20,853
Koninklijke Ahold NV (Retail).................... 360 9,394
Philips Electronics NV (Electronics)............. 260 15,596
Royal Dutch Petroleum Co. (Oil-Services)......... 1,160 63,687
Unilever NV (Food, Beverages & Tobacco).......... 320 19,731
-----------
141,726
-----------

NEW ZEALAND (2.0%)
Brierley Investments Ltd. (Financial Services)... 21,000 14,998
Carter Holt Harvey Ltd. (Forest Products &
Paper)......................................... 8,000 12,356
Fletcher Challenge Building Division Ltd.
(Building Materials)........................... 7,400 15,125
Fletcher Challenge Paper Division Ltd. (Forest
Products & Paper).............................. 8,200 10,713
Lion Nathan Ltd. (Food, Beverages & Tobacco)..... 8,300 18,603
Telecom Corp. of New Zealand Ltd.
(Telecommunications)........................... 12,700 61,575
-----------
133,370
-----------
NORWAY (1.8%)
Kvaerner ASA (Series B) (Capital Goods).......... 800 37,221
Norsk Hydro ASA (Oil-Services)................... 1,000 48,764
Nycomed Amersham PLC
(B Shares) (Biotechnology)+.................... 921 33,481
-----------
119,466
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

PAKISTAN (0.7%)
Fauji Fertilizer Co. Ltd. (Chemicals)+........... 10,100 $ 19,337
Hub Power Co. (GDR) (Utilities)+................. 400 12,400
Pakistan Telecommunications Corp. (GDR)
(Telecommunications)+.......................... 200 14,600
-----------
46,337
-----------

PERU (0.8%)
Cementos Lima SA (Spon. ADR) (Building
Materials)..................................... 1,300 28,318
Telefonica del Peru SA (ADR) (Telecommunication
Services)...................................... 1,200 27,975
-----------
56,293
-----------

PHILIPPINES (0.2%)
Philippine Long Distance Telephone Co. (ADR)
(Telecommunications)........................... 695 15,637
-----------

RUSSIA (1.1%)
AO Tatneft (Spon. ADR) (144A) (Oil-Production)... 300 42,750
Lukoil Oil Co (Spon. ADR) (Oil-Production)....... 350 32,200
-----------
74,950
-----------

SINGAPORE (1.1%)
City Developments Ltd. (Real Estate)............. 2,000 9,258
Fraser & Neave Ltd. (Food, Beverages &
Tobacco)....................................... 1,000 4,332
Osprey Maritime Ltd. (Transport & Services)...... 9,000 7,211
Singapore Airlines Ltd. (Airlines)............... 3,000 19,585
United Overseas Bank Ltd. (Banking).............. 5,000 27,746
Wong's Circuits Holdings Ltd.
(Semiconductors)+.............................. 7,000 4,585
-----------
72,717
-----------

SOUTH AFRICA (1.5%)
Billiton PLC (Metals & Mining)+.................. 8,800 22,604
Sasol Ltd. (Oil-Production)...................... 2,100 22,008
South Africa Breweries Ltd. (Food, Beverages &
Tobacco)....................................... 2,300 56,716
-----------
101,328
-----------
</TABLE>

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

52
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
SOUTH KOREA (0.9%)
Housing & Commercial Bank, Korea (GDR)
(Banking)...................................... 4,700 $ 24,651
Pohang Iron & Steel Co. Ltd. (ADR) (Metals &
Mining)........................................ 1,000 17,438
Samsung Electronics Co. Ltd. (GDR represents 1/2
voting common share)(144A) (Electronics)+...... 1,200 16,794
-----------
58,883
-----------

SPAIN (3.1%)
Acerinox SA (Metals & Mining).................... 62 9,181
Banco Bilbao Vizcaya SA (Banking)................ 1,690 54,664
Banco Popular Espanol SA (Banking)............... 320 22,360
Hidroelectrica del Cantabrico SA (Electric)...... 300 13,148
Iberdrola SA (Electric).......................... 6,400 84,191
Repsol SA (Gas Exploration)...................... 600 25,588
-----------
209,132
-----------

SWEDEN (1.9%)
Autoliv, Inc. (SDR) (Automotive Supplies)........ 2,000 65,160
Skandia Forsakrings AB (Insurance)............... 900 42,480
Svenska Handelsbanken (Banking).................. 700 24,217
-----------
131,857
-----------

SWITZERLAND (4.2%)
ABB AG (Machinery)............................... 19 23,904
Nestle SA (Food, Beverages & Tobacco)............ 61 91,549
Novartis AG (Pharmaceuticals).................... 16 25,998
Roche Holding AG (Pharmaceuticals)............... 7 69,614
Union Bank of Switzerland (Banking).............. 50 72,401
-----------
283,466
-----------

TAIWAN (0.8%)
Asustek Computer Inc. (GDR) (Computer
Peripherals)+.................................. 2,300 38,238
Taiwan Semiconductor Mfg. Co. Ltd. (Spon. ADR)
(Semiconductors)+.............................. 983 17,878
-----------
56,116
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

THAILAND (0.6%)
Bangkok Bank Public Co. Ltd. (Banking)........... 5,400 $ 13,458
Siam Cement Public Co. Ltd. (Building
Materials)..................................... 3,300 26,044
-----------
39,502
-----------

TURKEY (1.0%)
Koc Holding AS (Multi - Industry)................ 168,500 39,457
Turkiye Garanti Bankasi AS (Banking)............. 575,000 28,456
-----------
67,913
-----------

UNITED KINGDOM (14.7%)
Allied Colloids Group PLC (Chemicals)............ 5,128 14,006
Associated British Foods PLC (Food, Beverages &
Tobacco)....................................... 2,600 22,674
BAT Industries PLC (Food, Beverages & Tobacco)... 2,000 18,271
British Airways PLC (Airlines)................... 1,650 15,203
British Petroleum Co. PLC (Oil-Services)......... 3,615 47,906
British Sky Broadcasting Group PLC (Broadcasting
& Publishing).................................. 2,000 15,006
British Telecommunications PLC
(Telecommunications)........................... 4,300 33,942
Burmah Castrol PLC (Oil-Production).............. 500 8,737
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)....................................... 2,800 28,310
Compass Group PLC (Food, Beverages & Tobacco).... 1,800 22,183
Diageo PLC (Food, Beverages & Tobacco)........... 3,600 32,994
Glaxo Wellcome PLC (Pharmaceuticals)............. 3,700 88,366
Glynwed International PLC (Metals & Mining)...... 4,000 17,046
Great Universal Stores PLC (Retail).............. 2,500 31,551
Hanson PLC (Building Materials).................. 2,000 8,939
HSBC Holdings PLC (75p) (Banking)................ 2,000 51,995
Lloyds TSB Group PLC (Banking)................... 900 11,729
Lucas Varity PLC (Automotive Supplies)........... 10,100 35,730
</TABLE>

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

53
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
MEPC PLC (Real Estate)........................... 2,000 $ 16,717
National Power PLC (Electric).................... 1,000 9,872
Prudential Corp. PLC (Insurance)................. 2,500 30,497
Racal Electronic PLC
(Telecommunications-Equipment)................. 6,700 29,435
Rank Group PLC (Entertainment, Leisure &
Media)......................................... 3,950 22,033
Reed International PLC (Broadcasting &
Publishing).................................... 2,500 23,858
RMC Group PLC (Building Materials)............... 2,200 31,203
Royal Bank of Scotland Group PLC (Banking)....... 6,700 85,569
Sainsbury (J.) PLC (Retail)...................... 5,400 45,581
Scottish Power PLC (Electric).................... 2,200 19,475
Sears PLC (Retail)............................... 17,000 14,825
Shell Transport & Trading Co. (Oil-Services)..... 1,500 10,539
Standard Chartered PLC (Banking)................. 1,420 15,187
Sun Alliance Group PLC (Insurance)+.............. 2,000 20,173
Tomkins PLC (Multi - Industry)................... 3,300 15,638
Vodafone Group PLC (Telecommunications).......... 4,900 35,475
Wessex Water PLC (Water)......................... 2,600 21,946
Zeneca Group PLC (Pharmaceuticals)............... 1,220 43,290
-----------
995,901
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

VENEZUELA (0.3%)
Compania Anonima Nacional Telefonos de Venezuela
(ADR) (Telecommunication Services)............. 500 $ 20,813
-----------
TOTAL COMMON STOCK (COST $6,129,440)........... 6,236,384
-----------
</TABLE>

<TABLE>
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.4%)
AUSTRALIA (0.4%)
WBK STRYPES Trust (Banking) (cost $25,080)....... 800 26,800
-----------
</TABLE>

<TABLE>
<S> <C> <C>
PREFERRED STOCK (3.6%)
ARGENTINA (0.5%)
Quilmes Industrial SA (Spon. ADR non-voting)
(Food, Beverages & Tobacco).................... 2,400 32,850
-----------

AUSTRALIA (0.8%)
News Corporation Ltd. (Broadcasting &
Publishing).................................... 11,200 55,418
-----------

BRAZIL (2.0%)
Petroleo Brasileiro SA (Oil-Production).......... 250,000 58,467
Telecomunicacoes Brasileiras SA (ADR)
(Telecommunications)........................... 650 75,684
-----------
134,151
-----------

GERMANY (0.3%)
KRONES AG (Diversified Manufacturing)............ 40 12,458
ProSieben Media AG (Broadcasting &
Publishing)+................................... 220 10,278
Prosieben Media AG (ADR) (144A) (Broadcasting &
Publishing)+................................... 48 1,121
-----------
23,857
-----------
TOTAL PREFERRED STOCK (COST $224,968).......... 246,276
-----------
</TABLE>

<TABLE>
<S> <C> <C>
WARRANTS (0.2%)
GERMANY (0.2%)
Volkswagen AG, Expiring 10/27/98 (Automotive)
(cost $9,571)+................................. 45 12,739
-----------
</TABLE>

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

54
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
CONVERTIBLE BONDS (0.5%)
POLAND (0.3%)
Elektrim Spolka Akcyjna SA (144A), 2.00% due
05/30/04 (Electronics)......................... $ 36,000 $ 19,121
-----------

TAIWAN (0.2%)
U-Ming Marine Transport Corp., 1.50% due 02/07/01
(Transport & Services)......................... 15,000 12,750
-----------
TOTAL CONVERTIBLE BONDS (COST $35,668)......... 31,871
-----------
SHORT-TERM INVESTMENTS (0.7%)
OTHER INVESTMENT COMPANIES (0.7%)

(IN USD)
-----------
Seven Seas Money Market Fund, 5.62% due 01/02/98
(cost $52,085)................................. 52,085 52,085
-----------
TOTAL INVESTMENTS (COST $6,476,812) (97.4%)...................
6,606,155
OTHER ASSETS IN EXCESS OF LIABILITIES (2.6%)..................
173,746
-----------
NET ASSETS (100.0%)........................................... $ 6,779,901
-----------
-----------
</TABLE>

- ------------------------------
Note: For Federal Income Tax Purposes, the cost of securities at December 31,
1997, was $6,535,547, the aggregate gross unrealized appreciation and
depreciation was $742,480 and $671,872 respectively, resulting in net unrealized
appreciation of $70,608.

* - Less than 0.1%.

+ - 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.

55
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION

<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
----------
<S> <C>
Banking.......................................... 12.71%
Food, Beverages & Tobacco........................ 7.07%
Insurance........................................ 5.98%
Chemicals........................................ 5.69%
Pharmaceuticals.................................. 5.64%
Telecommunications............................... 5.38%
Oil-Services..................................... 4.43%
Telecommunications Services...................... 3.84%
Building Materials............................... 3.76%
Metals and Mining................................ 3.63%
Utilities........................................ 3.51%
Financial Services............................... 3.41%
Oil-Production................................... 3.31%
Electronics...................................... 2.97%
Retail........................................... 2.46%
Automotive Supplies.............................. 2.40%
Electric......................................... 2.33%
Automotive....................................... 2.06%
Forest Products and Paper........................ 1.85%
Multi-industry................................... 1.84%
Broadcasting & Publishing........................ 1.80%
Electrical Equipment............................. 1.42%
Airlines......................................... 1.28%
Entertainment and Leisure & Media................ 1.21%
Machinery........................................ 0.94%
Computer Software................................ 0.87%
Short Term Investments........................... 0.79%
Computer Peripherals............................. 0.58%
Capital Goods.................................... 0.56%
Construction & Housing........................... 0.52%
Biotechnology.................................... 0.51%
Computer Systems................................. 0.49%
Diversified Manufacturing........................ 0.45%
Telecommunications-Equipment..................... 0.45%
Commercial Services.............................. 0.40%
Real Estate...................................... 0.39%
Gas Exploration.................................. 0.39%
Household Products............................... 0.35%
Restaurant & Hotels.............................. 0.34%
Semiconductors................................... 0.34%
Water............................................ 0.33%
Transport and Services........................... 0.30%
Appliances & Household Durables.................. 0.30%
Manufacturing.................................... 0.23%
Packaging and Container.......................... 0.22%
Textiles and Apparel............................. 0.15%
Wholesale & International Trade.................. 0.12%
----------
100.00%
----------
----------
</TABLE>

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

56
<PAGE>
[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]

57
<PAGE>
J.P. MORGAN SERIES TRUST II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<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 $ 1,640,045 $15,556,516 $8,148,583 $4,358,635 $ 6,476,812
Foreign Currency, at Cost -- 3,540 -- -- 162,050
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
Investments, at Value $ 1,640,037 $15,751,081 $9,119,502 $5,184,887 $ 6,606,155
Cash 28 2,762 -- 62 --
Foreign Currency at Value -- 3,441 -- -- 159,911
Receivable for Investments Sold -- 2,118 -- 21,755 61,240
Receivable for Shares Sold -- 1,412 -- -- --
Dividends Receivable -- 3,333 11,180 3,370 13,032
Interest Receivable 578 142,348 44 33 256
Foreign Tax Reclaim Receivable -- -- -- -- 26,566
Receivable for Expense Reimbursement -- 11,652 14,514 9,249 8,810
Variation Margin Receivable -- 3,750 -- -- --
Unrealized Appreciation of Forward Foreign
Currency Contracts -- -- -- -- 80,673
Deferred Organization Expenses 3,953 3,953 3,953 3,953 3,953
Prepaid Trustees' Fees 448 562 3,854 862 1,079
Prepaid Expenses and Other Assets 1,255 4,707 7,070 4,441 10,273
------------ ----------- ----------- ----------- -------------
Total Assets 1,646,299 15,931,119 9,160,117 5,228,612 6,971,948
------------ ----------- ----------- ----------- -------------
LIABILITIES
Payable for Investments Purchased -- -- 224,371 1,413 132,508
Payable for Shares of Beneficial Interest
Redeemed 17 745 317 162 419
Advisory Fee Payable 5,430 4,099 2,932 2,568 3,362
Custody Fee Payable 2,070 6,562 6,689 13,943 29,247
Administration Fee Payable 66 28 17 9 6
Unrealized Depreciation of Forward Foreign
Currency Contracts -- -- -- -- 5,032
Accrued Expenses 21,481 20,560 33,479 14,672 21,473
------------ ----------- ----------- ----------- -------------
Total Liabilities 29,064 31,994 267,805 32,767 192,047
------------ ----------- ----------- ----------- -------------
NET ASSETS $ 1,617,235 $15,899,125 $8,892,312 $5,195,845 $ 6,779,901
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
Shares of Beneficial Interest Outstanding (no par
value, unlimited shares authorized) 153,216 1,408,760 620,352 397,055 639,535
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
Net Asset Value, Offering and Redemption Price
per Share $ 10.56 $ 11.29 $ 14.33 $ 13.09 $ 10.60
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
ANALYSIS OF NET ASSETS
Paid-in Capital $ 1,389,689 $15,632,614 $7,823,475 $4,292,919 $ 6,749,119
Undistributed Net Investment Income 227,554 35,503 499 1,960 12,994
Accumulated Net Realized Gain (Loss) on
Investments and Foreign Currency Transactions -- 32,745 97,419 74,714 (185,307)
Net Unrealized Appreciation (Depreciation) of
Investments and Foreign Currency Translations (8) 198,263 970,919 826,252 203,095
------------ ----------- ----------- ----------- -------------
Net Assets $ 1,617,235 $15,899,125 $8,892,312 $5,195,845 $ 6,779,901
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
</TABLE>

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

58
<PAGE>
J.P. MORGAN SERIES TRUST II
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<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>
INVESTMENT INCOME
Dividend Income $ -- $ 12,061 $ 110,899 $ 56,388 $ 159,094
Interest Income 320,841 442,799 16,240 12,667 1,763
Less: Foreign Taxes Withheld -- (131) (664) -- (19,707)
------------ ----------- ----------- ----------- -------------
Total Investment Income 320,841 454,729 126,475 69,055 141,150
EXPENSES
Custodian Fees and Expenses 5,704 33,981 42,456 82,718 150,620
Advisory Fee 8,198 19,640 30,661 28,951 40,707
Professional Fees and Expenses 10,495 28,846 44,832 28,597 40,639
Trustees' Fees and Expenses 3,743 11,259 14,846 11,378 17,379
Transfer Agent Expense 16,222 16,323 16,427 16,220 16,283
Printing Expenses 5,522 6,817 14,119 5,898 7,370
Insurance Expense 2,710 5,514 10,893 7,618 12,167
Amortization of Organization Expenses 1,967 1,967 1,967 1,967 1,967
Administration Fee 101 116 137 87 123
Miscellaneous 476 733 407 342 853
------------ ----------- ----------- ----------- -------------
Total Expenses 55,138 125,196 176,745 183,776 288,108
Less: Reimbursement of Expenses (30,545) (76,095) (107,757) (128,287) (206,693)
------------ ----------- ----------- ----------- -------------
NET EXPENSES 24,593 49,101 68,988 55,489 81,415
------------ ----------- ----------- ----------- -------------
NET INVESTMENT INCOME 296,248 405,628 57,487 13,566 59,735
NET REALIZED GAIN ON
Investment Transactions 98 87,569 1,503,440 552,703 478,326
Foreign Currency Transactions -- 1,713 -- -- 150,261
------------ ----------- ----------- ----------- -------------
Net Realized Gain 98 89,282 1,503,440 552,703 628,587
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (225) 156,847 217,774 468,721 (403,157)
Foreign Currency Contracts and Translations -- (99) -- -- 55,992
------------ ----------- ----------- ----------- -------------
Net Change in Unrealized Appreciation
(Depreciation) (225) 156,748 217,774 468,721 (347,165)
------------ ----------- ----------- ----------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 296,121 $ 651,658 $ 1,778,701 $ 1,034,990 $ 341,157
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
</TABLE>

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

59
<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 FISCAL FOR THE FISCAL FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 296,248 $ 60,586 $ 405,628 $ 123,899
Net Realized Gain on Investments and
Foreign Currency Transactions 98 70 89,282 19,950
Net Change in Unrealized Appreciation
(Depreciation) of Investments and
Foreign Currency Translations (225) (422) 156,748 (52,031)
----------------- ----------------- ----------------- -----------------
Net Increase in Net Assets Resulting
from Operations 296,121 60,234 651,658 91,818
----------------- ----------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (68,567) (60,586) (371,448) (122,875)
Net Realized Gain (227) (68) (76,188) (2,043)
----------------- ----------------- ----------------- -----------------
Total Distributions to Shareholders (68,794) (60,654) (447,636) (124,918)
----------------- ----------------- ----------------- -----------------
SHAREHOLDER TRANSACTIONS
Proceeds from Shares Sold 235,434,828 1,348,912 13,586,133 1,555,123
Reinvestment of Dividends and
Distributions 129,447 56,408 570,510 103,293
Cost of Shares Redeemed (235,560,885) (1,291,314) (1,243,619) (259,931)
----------------- ----------------- ----------------- -----------------
Net Increase from Shareholder
Transactions 3,390 114,006 12,913,024 1,398,485
----------------- ----------------- ----------------- -----------------
Total Increase in Net Assets 230,717 113,586 13,117,046 1,365,385
NET ASSETS
Beginning of Fiscal Year 1,386,518 1,272,932 2,782,079 1,416,694
----------------- ----------------- ----------------- -----------------
End of Fiscal Year $ 1,617,235 $ 1,386,518 $ 15,899,125 $ 2,782,079
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Undistributed Net Investment Income $ 227,554 $ -- $ 35,503 $ 1,024
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>

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

60
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
J.P. MORGAN J.P. MORGAN
EQUITY SMALL COMPANY
PORTFOLIO PORTFOLIO
------------------------------------- -------------------------------------
FOR THE FISCAL FOR THE FISCAL FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 57,487 $ 77,204 $ 13,566 $ 19,209
Net Realized Gain on Investments and
Foreign Currency Transactions 1,503,440 530,898 552,703 619,860
Net Change in Unrealized Appreciation
(Depreciation) of Investments and
Foreign Currency Translations 217,774 363,239 468,721 105,584
----------------- ----------------- ----------------- -----------------
Net Increase in Net Assets Resulting
from Operations 1,778,701 971,341 1,034,990 744,653
----------------- ----------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (56,988) (77,204) (12,562) (19,209)
Net Realized Gain (1,467,377) (542,542) (697,437) (518,489)
----------------- ----------------- ----------------- -----------------
Total Distributions to Shareholders (1,524,365) (619,746) (709,999) (537,698)
----------------- ----------------- ----------------- -----------------
SHAREHOLDER TRANSACTIONS
Proceeds from Shares Sold 1,347,586 1,586,005 681,496 1,722,979
Reinvestment of Dividends and
Distributions 2,071,106 321,572 1,128,681 431,401
Cost of Shares Redeemed (119,999) (1,064,347) (806,325) (1,030,591)
----------------- ----------------- ----------------- -----------------
Net Increase from Shareholder
Transactions 3,298,693 843,230 1,003,852 1,123,789
----------------- ----------------- ----------------- -----------------
Total Increase in Net Assets 3,553,029 1,194,825 1,328,843 1,330,744
NET ASSETS
Beginning of Fiscal Year 5,339,283 4,144,458 3,867,002 2,536,258
----------------- ----------------- ----------------- -----------------
End of Fiscal Year $ 8,892,312 $ 5,339,283 $ 5,195,845 $ 3,867,002
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Undistributed Net Investment Income $ 499 $ -- $ 1,960 $ --
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------

J.P. MORGAN
INTERNATIONAL OPPORTUNITIES
PORTFOLIO
-------------------------------------
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 59,735 $ 64,964
Net Realized Gain on Investments and
Foreign Currency Transactions 628,587 338,690
Net Change in Unrealized Appreciation
(Depreciation) of Investments and
Foreign Currency Translations (347,165) 295,017
----------------- -----------------
Net Increase in Net Assets Resulting
from Operations 341,157 698,671
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (230,309) (48,894)
Net Realized Gain (727,719) (248,948)
----------------- -----------------
Total Distributions to Shareholders (958,028) (297,842)
----------------- -----------------
SHAREHOLDER TRANSACTIONS
Proceeds from Shares Sold 1,080,068 1,941,265
Reinvestment of Dividends and
Distributions 1,255,869 138,377
Cost of Shares Redeemed (1,189,091) (222,820)
----------------- -----------------
Net Increase from Shareholder
Transactions 1,146,846 1,856,822
----------------- -----------------
Total Increase in Net Assets 529,975 2,257,651
NET ASSETS
Beginning of Fiscal Year 6,249,926 3,992,275
----------------- -----------------
End of Fiscal Year $ 6,779,901 $ 6,249,926
----------------- -----------------
----------------- -----------------
Undistributed Net Investment Income $ 12,994 $ --
----------------- -----------------
----------------- -----------------
</TABLE>

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

61
<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 PERIOD
FOR THE FISCAL JANUARY 3, 1995
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
------------------- DECEMBER 31,
1997 1996 1995
------ ------ ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09 $10.06 $ 10.00
------ ------ ----------------

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

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

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

RATIOS AND SUPPLEMENTAL DATA
Total Return 4.69% 4.69% 5.09%(b)
Net Assets, End of Period (in thousands) $1,617 $1,387 $ 1,273
Ratios to Average Net Assets
Expenses 0.60% 0.60% 0.60%(c)
Net Investment Income 7.23% 4.56% 4.95%(c)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.75% 1.42% 2.17%(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.

62
<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 PERIOD
FOR THE FISCAL JANUARY 3, 1995
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
-------------------- DECEMBER 31,
1997 1996 1995
------- ------ ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.65 $10.91 $ 10.00
------- ------ ----------------

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

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

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

RATIOS AND SUPPLEMENTAL DATA
Total Return 9.38% 2.09% 16.85%(b)
Net Assets, End of Period (in thousands) $15,899 $2,782 $ 1,417
Ratios to Average Net Assets
Expenses 0.75% 0.75% 0.75%(c)
Net Investment Income 6.20% 5.91% 6.00%(c)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 1.16% 1.43% 2.15%(c)
Portfolio Turnover 184% 198% 239%
</TABLE>

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

(d) Based on Average Daily Shares Outstanding.

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

63
<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 PERIOD
FOR THE FISCAL JANUARY 3, 1995
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
--------------------- DECEMBER 31,
1997 1996 1995
------- ------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.68 $ 12.63 $ 10.00
------- ------- ----------------

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

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

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

RATIOS AND SUPPLEMENTAL DATA
Total Return 27.50% 21.14% 33.91%(b)
Net Assets, End of Period (in thousands) $ 8,892 $ 5,339 $ 4,144
Ratios to Average Net Assets
Expenses 0.90% 0.90% 0.90%(c)
Net Investment Income 0.75% 1.49% 1.48%(c)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 1.41% 1.23% 1.80%(c)
Portfolio Turnover 119% 90% 66%
Average Broker Commissions Per Share $0.0452 $0.0534 N/A
</TABLE>

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

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

64
<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 PERIOD
FOR THE FISCAL JANUARY 3, 1995
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
--------------------- DECEMBER 31,
1997 1996 1995
------- ------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.53 $ 11.83 $ 10.00
------- ------- ----------------

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

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

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

RATIOS AND SUPPLEMENTAL DATA
Total Return 22.50% 21.74% 32.91%(b)
Net Assets, End of Period (in thousands) $ 5,196 $ 3,867 $ 2,536
Ratios to Average Net Assets
Expenses 1.15% 1.15% 1.15%(c)
Net Investment Income 0.28% 0.54% 0.99%(c)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 2.66% 1.54% 2.07%(c)
Portfolio Turnover 85% 144% 100%
Average Broker Commissions Per Share $0.0442 $0.0427 N/A
</TABLE>

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

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

65
<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 PERIOD
FOR THE FISCAL JANUARY 3, 1995
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
--------------------- DECEMBER 31,
1997 1996 1995
------- ------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.73 $ 10.86 $ 10.00
------- ------- ----------------

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

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

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

RATIOS AND SUPPLEMENTAL DATA
Total Return 5.43% 13.12% 12.38%(b)
Net Assets, End of Period (in thousands) $ 6,780 $ 6,250 $ 3,992
Ratios to Average Net Assets
Expenses 1.20% 1.20% 1.20%(c)
Net Investment Income 0.88% 1.25% 1.06%(c)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 3.05% 1.98% 1.96%(c)
Portfolio Turnover 149% 71% 68%
Average Broker Commissions Per Share $0.0040 $0.0020 N/A
</TABLE>

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

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

66
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

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. Prior to January 1,
1998, the Trust and the Portfolios' names were JPM Series Trust II, JPM Treasury
Money Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM Small
Company Portfolio and JPM International Equity Portfolio, respectively.

J.P. Morgan International Opportunities Portfolio's investments in international
markets may involve certain considerations and risks not typically associated
with investments in the United States. Future economic and political
developments in 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 exchange. 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 portfolio
securities with a remaining maturity of less than 60 days are valued at
amortized cost.

67
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

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 exchange on which they are traded closes and the time
when the Portfolio's net asset value is calculated, such securities will
be valued at fair value in accordance with procedures established by and
under the general supervision of the 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 used by certain Portfolios 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 the 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 method.

d) Distributions to shareholders of net investment income and net realized
capital gains, if any, are declared and paid at least annually. All
dividends and distributions will be automatically reinvested in additional
shares of the Portfolio with respect to which dividends have been
declared, at net asset value, as of the ex-dividend date of such
dividends.

e) 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.

68
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures established by
and under the general supervision of the Trustees and the change in the market
value is recorded by the Portfolios as unrealized appreciation or depreciation
of foreign currency translations. At December 31, 1997, the J.P. Morgan
International Opportunities Portfolio had open forward foreign currency
contracts as follows:

SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
COST/ VALUE AT APPRECIATION/
PURCHASE CONTRACTS PROCEEDS DECEMBER 31, 1997 (DEPRECIATION)
- ------------------------------------------------- -------- ----------------- --------------
<S> <C> <C> <C>
German Mark 52,435 expiring 02/23/98............. $ 30,000 $ 29,240 $ (760)
German Mark 52,025, expiring 02/23/98............ 30,000 29,011 (989)
Japanese Yen 3,762,813, expiring 02/23/98........ 30,000 29,048 (952)
Japanese Yen 3,762,150, expiring 02/23/98........ 30,000 29,043 (957)
Japanese Yen 3,745,689, expiring 02/23/98........ 30,000 28,916 (1,084)

SALES CONTRACTS
- -------------------------------------------------
<S> <C> <C> <C>
Australian Dollar 370,835, expiring 02/23/98..... $258,291 $ 241,981 $ 16,310
British Pound 207,747, expiring 02/23/98......... 347,682 340,329 7,353
Canadian Dollar 107,650, expiring 02/23/98....... 76,456 75,462 994
French Franc 738,718, expiring 02/23/98.......... 127,642 123,131 4,511
German Mark 268,522, expiring 02/23/98........... 153,988 149,738 4,250
German Mark 248,595, expiring 02/23/98........... 140,000 138,625 1,375
German Mark 124,682, expiring 02/23/98........... 70,000 69,527 473
Irish Pound 35,522, expiring 02/23/98............ 53,247 50,527 2,720
Irish Pound 33,765, expiring 02/23/98............ 48,915 48,028 887
Italian Lira 131,101,740, expiring 02/23/98...... 76,910 74,085 2,825
Japanese Yen 69,800,162, expiring 02/23/98....... 565,642 538,842 26,800
New Zealand Dollar 175,309, expiring 02/23/98.... 109,568 101,355 8,213
Singapore Dollar 80,000, expiring 02/23/98....... 50,457 47,131 3,326
South African Rand 161,370, expiring 02/23/98.... 32,420 32,710 (290)
Spanish Paseta 5,500,000, expiring 02/23/98...... 36,789 36,153 636
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 75,641
--------------
--------------
</TABLE>

f) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place will be 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"

69
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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 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 of
movements in the price of futures contracts, interest rates and the
underlying hedged assets. Futures transactions during the fiscal year
ended December 31, 1997 for the J.P. Morgan Bond Portfolio are summarized
as follows:

<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL AMOUNT
CONTRACTS OF CONTRACTS
--------- ----------------
<S> <C> <C>
Contracts open at beginning of year.............. -- $ --
Contracts opened................................. 16 1,734,117
Contracts closed................................. -- --
--------- ----------------
Contracts open at end of year.................... 16 $ 1,734,117
--------- ----------------
--------- ----------------
</TABLE>

SUMMARY OF OPEN CONTRACTS AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACTS LONG (DEPRECIATION)
-------------- --------------
<S> <C> <C>
US 5-Year Note, expiring March 1998.............. 16 $ 3,883
-------------- --------------
Totals........................................... 16 $ 3,883
-------------- --------------
-------------- --------------
</TABLE>

g ) Each Portfolio incurred organizational expenses in the amount of $9,834.
These expenses were deferred and are being amortized on a straight-line
basis over a period not to exceed five years beginning with the
commencement of operations.

h) Expense 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 allocation of direct expenses to each
Portfolio can otherwise be made fairly. Expense directly attributable to a
Portfolio are charged to that Portfolio.

i) Each Portfolio is treated as a separate entity for federal income tax
purposes. 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. As of December 31, 1997, the International
Opportunities Portfolio incurred and elected to defer post-October losses
of $464,670 until the next taxable year.

70
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

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.

j) The Portfolios account for and report distributions to shareholders in
accordance with Statement of Position 93-2: "Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies." The effect of applying
this statement for the year ended December 31, 1997, for the J.P. Morgan
International Opportunities Portfolio, was to decrease undistributed net
investment loss by $183,568, increase accumulated net realized loss on
investments and foreign currency transactions by $182,399 and decrease
Additional Paid-in-Capital by $1,169. The adjustments are primarily
attributable to foreign currency gains. The effect of applying this
statement for the year ended December 31, 1997, for the J.P. Morgan
Treasury Money Market Portfolio, was to decrease undistributed net
investment income by $127, and decrease accumulated net realized loss on
investments by $127. The effect of applying this statement for the year
ended December 31, 1997, for the J.P. Morgan Bond Portfolio, was to
increase undistributed net investment income by $299, and decrease
accumulated net realized gain on investments by $299. The effect of
applying this statement for the year ended December 31, 1997, for the J.P.
Morgan Small Company Portfolio, was to increase undistributed net
investment income by $956, and decrease accumulated net realized gain on
investments by $956. Net investment income, net realized gains and net
assets on the Portfolios were not affected by this change.

2. TRANSACTIONS WITH AFFILIATES

a) The Trust, on behalf of the Portfolios, 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 agreement,
Morgan is responsible for the overall management and supervision of each
Portfolio. Morgan makes each Portfolio's day-to-day investment decisions,
arranges for the execution of portfolio transactions and generally manages
each Portfolio's investments. 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 fiscal year ended December 31, 1997,
Morgan's fees for these services amounted to $8,198, $19,640, $30,661,
$28,951, and $40,707, respectively.

b) The Trust, on behalf of each Portfolio, has retained Funds Distributor,
Inc. ("FDI"), a registered broker-dealer, to serve as 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 the Portfolio,
furnishes office space and facilities

71
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
required for conducting the business of each Portfolio and pays the
compensation of the Portfolios' officers affiliated with FDI. Under the
Co-Administration Agreement, 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 its net assets to the aggregate net assets of the
Trust and certain other investment companies subject to similar agreements
with FDI. For the fiscal year ended December 31, 1997, the fee for these
services amounted to: $101, $116, $137, $87 and $123 for J.P. Morgan
Treasury Money Market Portfolio, J.P. Morgan Bond Portfolio, J.P. Morgan
Equity Portfolio, J.P. Morgan Small Company Portfolio and J.P. Morgan
International Opportunities Portfolio, respectively.

Morgan Guaranty Trust Company of New York ("Morgan Guaranty") an affiliate
of Morgan is responsible for the payment of FDI's fees under the
Co-Administration Agreement. See Note 2c.

c) The Trust, on behalf of each Portfolio, has an Administrative Services
Agreement (the "Services Agreement") with Morgan Guaranty under which
Morgan Guaranty may receive a fee, based on the percentages described
below, for overseeing certain aspects of the administration and operation
of the Portfolios. The Services Agreement is also designed to provide an
expense limit for certain expenses of the Portfolios. If total expenses of
the Portfolios, excluding the advisory fees, exceed 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 the
Portfolios 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 fiscal year ended December 31, 1997,
Morgan Guaranty has agreed to reimburse the Portfolios for expenses under
this agreement as follows: $30,545, $76,095, $107,757, $128,287 and
$206,693, 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.

72
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

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 FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Shares sold...................................... 22,331,609 130,402
Reinvestment of dividends and distributions...... 12,537 5,606
Shares redeemed.................................. (22,328,305) (125,133)
----------------- -----------------
Net Increase..................................... 15,841 10,875
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN BOND PORTFOLIO DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Shares sold...................................... 1,205,082 146,230
Reinvestment of dividends and distributions...... 51,352 9,476
Shares redeemed.................................. (108,943) (24,337)
----------------- -----------------
Net Increase..................................... 1,147,491 131,369
----------------- -----------------
----------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN EQUITY PORTFOLIO DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Shares sold...................................... 87,424 119,491
Reinvestment of dividends and distributions...... 150,317 25,185
Shares redeemed.................................. (7,706) (82,429)
----------------- -----------------
Net Increase..................................... 230,035 62,247
----------------- -----------------
----------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN SMALL COMPANY PORTFOLIO DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Shares sold...................................... 55,026 143,575
Reinvestment of dividends and distributions...... 92,418 36,193
Shares redeemed.................................. (59,040) (85,441)
----------------- -----------------
Net Increase..................................... 88,404 94,327
----------------- -----------------
----------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Shares sold...................................... 88,691 172,202
Reinvestment of dividends and distributions...... 116,906 12,740
Shares redeemed.................................. (98,969) (19,591)
----------------- -----------------
Net Increase..................................... 106,628 165,351
----------------- -----------------
----------------- -----------------
</TABLE>

73
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------

From time to time, certain Portfolios may have a concentration of several
shareholders holding a significant percentage of shares outstanding. Investment
activities of these shareholders could have a material impact on the Portfolio.

4. INVESTMENT TRANSACTIONS

Investment transactions (excluding short-term investments) for the fiscal year
ended December 31, 1997, were as follows:

<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------------- ----------
<S> <C> <C>
J.P. Morgan Bond Portfolio
U.S. Government Agency Obligations.............. $ 12,855,726 $7,945,869
Corporate, Collateralized Mortgage and Other
Obligations..................................... 8,755,918 2,772,357
J.P. Morgan Equity Portfolio..................... 9,835,132 8,693,875
J.P. Morgan Small Company Portfolio.............. 3,881,852 4,017,348
J.P. Morgan International Opportunities
Portfolio....................................... 9,689,122 9,665,909
</TABLE>

74
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
J.P. Morgan Series Trust II (formerly JPM Series Trust II)

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of J.P. Morgan Treasury Money Market
Portfolio, J.P. Morgan Bond Portfolio, J.P. Morgan Equity Portfolio, J.P. Morgan
Small Company Portfolio and J.P. Morgan International Opportunities Portfolio
(constituting J.P. Morgan Series Trust II, hereafter referred to as the
"Portfolios") at December 31, 1997, the results of each of their operations, the
changes in each of their net assets and the financial highlights for the year
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolios' management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above. The
statements of changes in net assets for the year ended December 31, 1996 and the
financial highlights for the year ended December 31, 1996 and for the period
January 3, 1995 (commencement of operations) through December 31, 1995 were
audited by other independent accountants whose report dated February 14, 1997
expressed an unqualified opinion on those statements.

PRICE WATERHOUSE LLP
New York, New York
February 12, 1998

75
<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

ANNUAL REPORT
DECEMBER 31, 1997