JP MORGAN SERIES TRUST II, N-30D, 1999-03-02

JP MORGAN SERIES TRUST II
N-30D, 1999-03-02

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<PAGE>

ANNUAL REPORT
DECEMBER 31, 1998

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

February 1, 1999

Dear Shareholder:

We are pleased to provide you with the December 31, 1998 Annual Report for the
J.P. Morgan Series Trust II.

GLOBAL MARKET REVIEW

The past 12 months were marked by worldwide volatility stemming from financial
and economic crises in Asia, Russia, and Latin America. A flight to quality
prevailed for much of the year. U.S. large-cap stocks and Treasury securities,
in particular, benefited from a strong influx of capital.

The S&P 500 Index returned 28.58% for the 12 months ended December 31, 1998--the
fourth straight year of 20%+ gains in the Index. This remarkable performance was
led by the "Nifty Fifty," the largest growth-oriented stocks, and did not extend
to small-cap names. The small stocks in the Russell 2000 Index were penalized
for their perceived lack of liquidity. The Index declined 2.48% for the year.

U.S. bonds, as measured by the SalomonSmithBarney Broad Investment Grade Bond
Index, posted a 12 month return of 8.72%. Spreads widened to a historical degree
in 1998, but during the fourth quarter began to come back into line. Several
Federal Reserve easings during the quarter helped the bond market, as well as
the stock market.

Foreign stocks were buffeted by problems in several emerging economies.
Concerted central bank easings in the fourth quarter helped to calm world
markets, and the MSCI EAFE Index rose 20.00% for the year. European stocks in
particular benefited from continued optimism over corporate restructuring.
Japanese equities, after slumping for much of the year, began to rally on an
injection of capital into the banking sector. Brazil re-elected its president,
seeming to endorse his fiscal austerity program. But concerns still linger about
that country's stability and prospects.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C>
LETTER TO THE SHAREHOLDERS. . . . . 1 J.P. MORGAN EQUITY PORTFOLIO . . . . .12
PORTFOLIO REVIEWS J.P. MORGAN SMALL COMPANY PORTFOLIO. .18
J.P. MORGAN TREASURY MONEY MARKET J.P. MORGAN INTERNATIONAL
PORTFOLIO . . . . . . . . . . . . . 3 OPPORTUNITIES PORTFOLIO . . . . . . .24
J.P. MORGAN BOND PORTFOLIO. . . . . 6 FINANCIAL STATEMENTS . . . . . . . . .32
- --------------------------------------------------------------------------------
</TABLE>

1
<PAGE>

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

As chairman and president of Asset Management Services, we thank you for your
participation in the J.P. Morgan Series Trust II portfolios. We look forward to
sharing Morgan's insights regarding financial markets with you in the future. If
you have any comments or questions, please call the trust's distributor, Funds
Distributor, Inc., at (800) 221-7930.

Sincerely yours,

/s/ Ramon de Oliveira /s/ Keith M. Schappert

Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated

2
<PAGE>

J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO

PORTFOLIO REVIEW

We are pleased to report that J.P. Morgan Treasury Money Market Portfolio
provided a 4.28% return for the year ended December 31, 1998. The portfolio's
net assets stood at $2.1 million at the end of the reporting period.

The portfolio's net asset value per share decreased from $10.56 on December 31,
1997, to $9.20 on December 31, 1998. The portfolio's total net assets increased
from $1.6 million to $2.1 million at the end of the reporting period.

EXAMINING PERFORMANCE

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

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- ----------------------------------------
THREE SIX ONE THREE SINCE
AS OF DECEMBER 31, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- --------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Treasury
Money Market Portfolio 0.92% 2.01% 4.28% 4.55% 4.68%
IBC U.S.Treasury and Repo
Money Fund Average** 1.06% 2.26% 4.71% 4.71% 4.83%
Lipper Variable Annuity
Money Market Average 1.20% 2.49% 5.10% 5.08% 5.20%
</TABLE>

*1/3/95 -- COMMENCEMENT OF OPERATIONS.
**IBC U.S. TREASURY AND REPO MONEY FUND AVERAGE REPRESENTS THE AVERAGE
PERFORMANCE OF SIMILARLY MANAGED FUNDS AND DOES NOT INCLUDE FEES OR OPERATING
EXPENSES AND IS NOT AVAILABLE FOR DIRECT INVESTMENT.

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

3
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTO]

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, Skip 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 15, 1999, and
reflects Skip's views on that date.

HOW DID THE MARKETS PERFORM DURING THE YEAR ENDED DECEMBER 31, 1998?

RJ: The first half of 1998 was characterized by a strong economy, almost no
inflation, and strong consumer spending. As a result, the Federal Reserve was
believed to hold a bias toward tightening. July and August, however, saw
worldwide market corrections caused by financial and economic crises in several
of the emerging markets. In this turbulent atmosphere, many investors fled to
quality, causing the U.S. Treasury market to rally significantly.

During the fourth quarter, the Fed eased short rates three times, bringing the
Fed funds rate to a four-year low of 4.75%. As the capital markets began their
recovery from illiquidity, however, it became clear that policy makers had
shifted from an easing bias back to neutral. Economic growth slowed slightly,
but consumer spending remained steady. The threat of inflation continued to
recede.

HOW DID THE J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO PERFORM DURING THIS
VOLATILE YEAR?

RJ: The portfolio returned 4.28% for the 12 months ended December 31, 1998,
lagging the IBC U.S. Treasury and Repo Money Fund Average, which returned 4.71%.
The portfolio also underperformed the Lipper Variable Annuity Money Market
Average, which returned 5.10%. Largely because of our size, we hold only one
Treasury bill with a January maturity. Many of the funds in the Lipper average
are large enough to reap the benefits of owning higher yielding repurchase
agreements.

WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?

RJ: We expect sluggish overall growth in global GDP and no growth in
manufacturing in 1999. In the U.S., while we are impressed with the persistent
strength we see currently, we continue to believe that the ongoing slowdown in
manufacturing will lead to more modest growth in 1999. Though an abrupt slowdown
is always a risk, the more likely outcome is a less dramatic slowing of
activity.

We expect the Fed to remain responsive to the slowing economy by continuing to
ease monetary policy throughout the year, which should cause the yield curve to
steepen and overall interest rates to decline.

4
<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

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

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

- --------------------------------------------------------------------------------
NET ASSETS AS OF 12/31/98
$2,091,715

- --------------------------------------------------------------------------------
AVERAGE LIFE
21 DAYS

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
4/29/99

- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
4/29/99

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, 1998

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
U.S. TREASURY OBLIGATIONS 97.3%
OTHER INVESTMENT COMPANIES 2.7%
</TABLE>

5
<PAGE>

J.P. MORGAN BOND PORTFOLIO

PORTFOLIO REVIEW

The J.P. Morgan Bond Portfolio posted a solid return of 8.01% for the year ended
December 31, 1998, compared to the 8.72% return of its benchmark, the
SalomonSmithBarney Broad Investment Grade Index for the same period.

The portfolio's net asset value per share increased from $11.29 on December 31,
1997, to $11.67 on December 31, 1998. During the year, the portfolio paid
approximately $0.39 per share from net investment income, and approximately
$0.09 per share from short-term capital gains and $0.04 from long-term capital
gains.The portfolio's total net assets increased from $15.9 million on December
31, 1997 to $32.5 million at the end of the reporting period.

6
<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE

There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested in the portfolio on
January 3, 1995,* would have been worth $14,095 at December 31, 1998.

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 ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.

GROWTH OF $10,000 SINCE INCEPTION

JANUARY 3, 1995* -- DECEMBER 31,1998

[GRAPH]

J.P. Morgan Salomon Brothers Lipper Variable
<S> <C> <C> <C>
Dec-94 $10,000 $10,000 $10,000
Jun-95 $11,000 $11,151 $11,143
Dec-95 $11,689 $11,855 $11,913
Jun-96 $11,405 $11,706 $11,646
Dec-96 $11,931 $12,284 $12,211
Jun-97 $12,263 $12,600 $12,559
Dec-97 $13,050 $13,466 $13,353
Jun-98 $13,555 $14,000 $13,889
Dec-98 $14,095 $14,640 $14,434
</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 THREE SINCE
AS OF DECEMBER 31, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- --------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Bond Portfolio 0.21% 3.98% 8.01% 6.44% 8.96%
SalomonSmithBarney BIG Bond Index** 0.41% 4.57% 8.72% 7.29% 10.00%
Lipper Variable Annuity
Corporate Debt A-Rated Average 0.16% 3.92% 8.07% 6.56% 9.56%
</TABLE>

*1/3/95 -- COMMENCEMENT OF OPERATIONS.
**THE SALOMONSMITHBARNEY BROAD INVESTMENT GRADE BOND INDEX: AN UNMANAGED,
MARKET-WEIGHTED INDEX THAT CONTAINS APPROXIMATELY 4,700 INDIVIDUALLY PRICED
INVESTMENT GRADE BONDS. THE INDEX DOES NOT INCLUDE FEES OR EXPENSES AND IS NOT
AVAILABLE FOR ACTUAL INVESTMENT.

7
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTO]

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 15, 1999,
and reflects Bill's views on that date.

HOW DID THE FIXED INCOME MARKETS PERFORM DURING THE 12 MONTHS ENDED DECEMBER 31,
1998?

WT: Fixed income markets around the world experienced extreme volatility during
the past 12 months. The trouble goes back to July of 1997, when Thailand
devalued its currency. Since then, instability and turmoil have spread to most
other markets.

This summer, spreads - the difference between interest rates paid by different
types of bonds - started to widen. In a flight to quality, investors began to
sell the bonds they viewed as risky, and buy the bonds they viewed as more
stable.

Emerging markets debt and high-yield bonds were hardest hit. U.S. Treasury bonds
became the security of choice, pushing interest rates down to lows not seen
since the early 1990s. This touched off a wave of mortgage refinancings, which
caused mortgage-backed securities to suffer.

Corporate debt was left in the lurch as well, as the attractiveness of
government bonds left corporate bonds without any buyers.

HOW DID THE J.P. MORGAN BOND PORTFOLIO PERFORM?

WT: In this challenging market environment, the J.P. Morgan Bond Portfolio
returned 8.01% for the 12 months ended December 31, 1998. However, the portfolio
trailed its peers as measured by the Lipper Variable Annuity Corporate Debt
A-Rated Average, which returned 8.07% and the SalomonSmithBarney Broad
Investment Grade Bond Index, which returned 8.72% for the period.

The widening of spreads created challenges for all well-diversified bond
portfolios. We reacted to the changes in the market, trimming our positions in
the sectors that were hurt, while adding to our holdings in the
better-performing sectors. We also lengthened the portfolio's duration in order
to take advantage of the strong Treasury market. We presently have the portfolio
allocated the way we want, and we're watching the bond market closely to see
what further changes may be necessary.

8
<PAGE>

WHICH SECTORS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?

WT: Our Treasury bond holdings contributed to our performance during the
period. Our extended duration - we went as far as our portfolio parameters
permit - also boosted our performance. Roughly 5% of the portfolio was invested
in European bonds earlier in the year. These securities performed quite well,
and we sold out of the position, believing that the gains from the upcoming
European Monetary Union have already been realized.

WHICH SECTORS HINDERED THE PORTFOLIO'S PERFORMANCE?

WT: Our positions in emerging markets debt, high-yield bonds, and corporate
bonds all suffered with their broader markets. We did what we could to trim
these holdings, but selling took time. By mid-August, we had reduced our
holdings in these sectors to levels with which we were comfortable.

The Federal Reserve's decision to cut interest rates - three times as of this
writing - added much-needed liquidity to the fixed income markets. We're
starting to feel that we're out of the woods, as trades now have both a buyer
and a seller. However, there is still a lot of uncertainty in the world's
markets.

WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?

WT: We believe there are still many hot spots around the globe. Japan has only
recently come up with a realistic plan for dealing with its economic woes. Latin
America, Asia, and Russia all have serious problems that are still making their
effects felt.

Spreads are not as wide as they were this summer, but they tend to widen every
time a new bond issue comes to market. In such an uncertain environment, we are
watching the markets closely, ready to make whatever adjustments to the
portfolio we deem necessary. I believe that a well-diversified fixed income
portfolio offers worthwhile access to the bond market, regardless of market
conditions.

9
<PAGE>
PORTFOLIO FACTS

INVESTMENT OBJECTIVE

J.P. Morgan Bond Portfolio seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity. The portfolio is designed
for investors who seek a total return over time that is higher than that
generally available from a portfolio of short-term obligations while
acknowledging greater price fluctuation of longer-term instruments.

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

- --------------------------------------------------------------------------------
NET ASSETS AS OF 12/31/98
$32,541,456

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
4/29/99

- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
4/29/99

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, 1998

PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS 30.0%
CORPORATE OBLIGATIONS 20.6%
SHORT-TERM & OTHER INVESTMENTS 14.3%
COLLATERALIZED MORTGAGE OBLIGATIONS
& ASSET BACKED SECURITIES 13.7%
U.S. TREASURY OBLIGATIONS 12.6%
FOREIGN GOVERNMENT OBLIGATIONS 4.4%
FOREIGN CORPORATE OBLIGATIONS 2.4%
SOVEREIGN BONDS 2.0%
</TABLE>

30-DAY SEC YIELD
5.01%

DURATION
6.15 years

<TABLE>
<CAPTION>
QUALITY BREAKDOWN
<S> <C>
AAA* 71%
AA 4%
A 13%
Other 12%
</TABLE>

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

10
<PAGE>

<TABLE>
<CAPTION>
LARGEST HOLDINGS

% OF TOTAL
(EXCLUDING SHORT-TERM INVESTMENTS) INVESTMENTS
- ---------------------------------------------------------------------------
<S> <C>
FNMA TBA, JANUARY, 6.00% DUE 12/01/28 7.70%
US TREASURY BONDS, 6.75%, DUE 8/15/26 4.91%
FNMA TBA, JANUARY, 6.50% DUE 12/01/28 4.60%
FNMA, 7.00% DUE 08/01/28 4.21%
FIRST UNION-LEHMAN BROTHERS-BANK OF AMERICA,
6.56% DUE 11/18/08 3.71%
FHLMC,7.00% DUE 02/01/28 3.52%
ILLINOIS POWER SUPPLY, 5.34% DUE 06/30/03 2.79%
REMIC: SEQUENTIAL PAYER, SERIES 2080,CLASS Z,
PARTIALLY CALLABLE, 6.50% DUE 8/15/28 2.03%
US TREASURY NOTE, 5.375% DUE 06/30/03 1.79%
GNMA, 7.00%, DUE 7/15/28 1.43%
</TABLE>

11
<PAGE>

J.P. MORGAN EQUITY PORTFOLIO

PORTFOLIO REVIEW

The J.P. Morgan Equity Portfolio returned 23.28% for the year ended December 31,
1998. The portfolio surpassed the Lipper Variable Annuity Growth & Income
Average, which returned 16.37% for the same period. The S&P 500 Index returned
28.58%for the reporting period.

The portfolio's net asset value per share increased from $14.33 on December 31,
1997, to $15.84 on December 31, 1998. The portfolio made distributions during
the year of approximately $0.09 per share from ordinary income, approximately
$0.41 per share from short-term capital gains, and approximately $1.24 per share
from long-term capital gains. In addition, the portfolio's net assets advanced
from approximately $8.9 million on December 31, 1997, to approximately $18.5
million on December 31, 1998.

<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE

There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested in the portfolio on
January 3, 1995* would have been worth $25,501 at December 31, 1998.

<TABLE>
<CAPTION>
GROWTH OF $10,000 SINCE INCEPTION

JANUARY 3, 1995 -- DECEMBER 31, 1998
[GRAPH]
Lipper Variable
J.P. Morgan Equity Annuity Growth &
Portfolio S&P 500 Index Income Average
<S> <C> <C> <C>
Dec-94 $10,000 $10,000 $10,000
Jun-95 $11,940 $12,021 $11,655
Dec-95 $13,378 $13,758 $13,198
Jun-96 $14,620 $15,147 $14,428
Dec-96 $16,223 $16,917 $15,970
Jun-97 $19,024 $20,403 $18,504
Dec-97 $20,685 $22,561 $20,321
Jun-98 $23,734 $26,556 $22,827
Dec-98 $25,501 $29,008 $23,633
</TABLE>

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- ----------------------------------------
THREE SIX ONE THREE SINCE
AS OF DECEMBER 31, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- --------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Equity Portfolio 20.73% 7.45% 23.28% 23.99% 26.37%
S&P 500 Index** 21.30% 9.23% 28.58% 28.23% 30.51%
Lipper Variable Annuity
Growth & Income Average 17.79% 3.54% 16.37% 21.21% 23.99%
</TABLE>

*1/3/95 -- COMMENCEMENT OF OPERATIONS.
**THE S&P 500 INDEX IS AN UNMANAGED INDEX WHICH MEASURES THE AVERAGE
PERFORMANCE OF 500 WIDELY HELD U.S. LARGE-CAP STOCKS. THE INDEX DOES NOT
INCLUDE FEES OR OPERATING EXPENSES AND IS NOT AVAILABLE FOR DIRECT INVESTMENT.

13
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTO]

The following is an interview with HENRY D. CAVANNA, a member of the portfolio
management team for the J.P. Morgan Equity Portfolio. Henry joined Morgan in
1971. He is a senior U.S. equity portfolio manager in the U.S. Equity and
Balanced Accounts Group. Prior to joining Morgan, Henry was with Harris Upham &
Co. He received his B.A. from Boston College and his L.L.B. from the University
of Pennsylvania. This interview took place on January 15, 1999, and reflects
Henry's views on that date.

HOW DID THE U.S. EQUITY MARKET PERFORM DURING THE 12 MONTHS ENDED DECEMBER 31,
1998?

HC: The S&P 500 Index returned 28.58% for the 12 months, but that number belies
the volatility the market experienced during the period. For the first half of
the year, the U.S. stock market performed well, buoyed by a solid U.S. economy
and strong consumer spending. Then, in July and August, a global economic and
credit crisis shook the market, taking it down almost 20% from its highs.

The largest of the large-cap stocks outpaced all others, as they've been doing
for four years now. This trend was sustained by Asia's troubles, which caused
investors to seek security in large caps. For much of the year, there was an
incredible flight to quality, as investors feared the impact of Asia on U.S.
company earnings, prices, and demand.

Among the other problems that rocked the world markets were Russia's default on
its bonds, the bailout of several high-profile hedge funds including Long-Term
Capital Management and D.E. Shaw, and troubling weakness in Japan.

The summer downturn led to a dramatic flight to quality in fixed income and
equity markets. Risk was repriced in the markets, and investors avidly sought
securities they considered "stable."

In early autumn, the Federal Reserve enacted a preemptive interest rate cut in
an attempt to settle world markets and address the financial shocks. With two
additional Fed easings, as well as rate cuts around the world, U.S. stocks
rallied back and made new highs and interest rate spreads began to narrow. The
year ended on a strong note, as investors anticipated a seasonally strong
January.

HOW DID THE J.P. MORGAN EQUITY PORTFOLIO PERFORM DURING THE PERIOD?

HC: The portfolio returned 23.28% for the 12 months ended December 31, 1998,
trailing the 28.58% return of the S&P 500 Index. However, the fund significantly
outpaced its peers, as measured by the Lipper Variable Growth & Income Fund
Average, which returned 16.37%. The portfolio performed strongly in the fourth
quarter, returning 20.73% while the S&P 500 returned 21.30% and the Lipper
average returned 17.79%.

14
<PAGE>

The portfolio suffered as the "Nifty Fifty" stocks saw continued strength and
the importance of valuations continued to wane. To illustrate the wide disparity
of returns: for the 12 months ended December 31, 1998, the Russell 1000 Value
Index returned only 15.63%, while the Russell 1000 Growth Index was up 38.71%.
Although growth stocks have outperformed value stocks for several years, during
the period under review, this trend became as extreme as it has ever been.

We select stocks for the portfolio based on our view of each company's long-term
prospects, while the market has focused almost entirely on short-term momentum.
The portfolio has a value slant, while the market has not tended to reward
undervalued companies. However, we are sticking to our disciplined approach to
U.S. equities, because long-term success in money management comes from
maintaining a consistent style.

WHICH STOCKS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?

HC: Sun Microsystems has been one of the portfolio's best performers. The
company, the leading vendor of high-end Unix-based computer systems, has
successfully made the transition from technical workstations to enterprise
servers.

Sun's Java, an Internet programming language, has fortified the company's
position as a leader in network-based computing. There is an increased
perception among investors that Sun will be a significant player in enterprise
computing.

In addition to being reasonably valued, the company has experienced strong
operating trends which have resulted in strong earnings growth.

Philip Morris is another strong stock in the portfolio. Throughout the six
months, the stock benefited from the increasing likelihood - and eventual fact -
that a settlement would be reached between the tobacco industry and the state
attorneys general. The settlement addresses the tobacco companies' liability for
smoking-related Medicaid claims. The settlement has reduced the uncertainty
associated with Philip Morris, and gives the company the financial flexibility
to increase its dividend and resume share repurchases.

WHICH STOCKS HINDERED THE PORTFOLIO'S PERFORMANCE?

HC: Starwood Hotel & Resorts hampered the portfolio's returns. The largest hotel
company in the U.S., Starwood owns the Westin and Sheraton chains. Through its
ownership of Caesar's, Starwood is also involved in the gaming industry. The
entire real estate sector has been under pressure this year, largely because of
concerns about the outlook for hotels and commercial real estate in a slowing
economy. Gaming has also suffered as foreign tourist traffic has slowed. Since
Starwood has considerable assets, though, we believe it will realize more value
for shareholders over time. We continue to hold this attractively valued stock.

15
<PAGE>

Our holding in Monsanto also hindered the portfolio's return. The stock suffered
after its planned acquisition by American Home Products fell through due to
differences in management philosophy. Despite this setback, we increased our
investment in Monsanto for several reasons. During 1998, Monsanto acquired a
number of seed companies and began to market genetically improved seeds that are
disease-resistant. The company recently received approval to launch - in
partnership with Pfizer - Celebrex, the first in a new class of anti-arthritic
drugs called Cox-2 inhibitors. We believe the company is emerging as a leader in
the agricultural biotechnology field, a development which, combined with
Monsanto's strong position in the pharmaceutical industry, should translate into
superior earnings growth over the next several years.

WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?

HC: We have a balanced outlook for the months ahead. We think 1999 will see
U.S. economic growth moderating. Manufacturing is starting to slow, and we
believe corporate profit growth will slow as well. The market is vulnerable to
future shocks such as possible impeachment and further trouble in Latin America
and Asia.

In spite of these causes for concern, the stock market is presently at robust
levels. Inflation is not on the horizon, and interest rates remain low. The U.S.
economy is still doing very well relative to the rest of the world. Thus, we
remain focused on the long term as we seek undervalued U.S. stocks.

16
<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

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

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

- --------------------------------------------------------------------------------
NET ASSETS AS OF 12/31/98
$18,510,888

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
4/29/99

- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
4/29/99

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, 1998

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
TECHNOLOGY 15.7%
CONSUMER GOODS & SERVICES 15.6%
FINANCE 13.9%
HEALTH CARE 11.3%
UTILITIES 9.6%
INDUSTRIAL PRODUCTS & SERVICES 9.6%
ENERGY 7.1%
BASIC INDUSTRIES 4.6%
TRANSPORTATION 2.2%
SHORT-TERM & OTHER INVESTMENTS 10.4%
</TABLE>

<TABLE>
<CAPTION>
LARGEST HOLDINGS
(EXCLUDING SHORT-TERM INVESTMENTS) % OF TOTAL INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
MONSANTO CO. (HEALTH CARE) 2.6%
INTERNATIONAL BUSINESS MACHINES CORP. 2.4%
(TECHNOLOGY)
BANKAMERICA CORP. (FINANCE) 2.3%
MICROSOFT CORP. (TECHNOLOGY) 2.3%
BRISTOL-MYERS SQUIBB CO. (HEALTH CARE) 2.2%
UNION PACIFIC CORP. (TRANSPORTATION) 2.2%
TYCO INTERNATIONAL LTD. 2.0%
(INDUSTRIAL PRODUCTS & SERVICES)
EMC CORP. (TECHNOLOGY) 2.0%
ATLANTIC RICHFIELD CO. (ENERGY) 2.0%
PHILIP MORRIS COMPANIES, INC. 1.9%
(CONSUMER GOODS & SERVICES)
</TABLE>

17
<PAGE>

J.P. MORGAN SMALL COMPANY PORTFOLIO

PORTFOLIO REVIEW

The J.P. Morgan Small Company Portfolio suffered, as did many small stocks in
1998. The portfolio returned -5.51% for the year, versus -2.55% for the
benchmark Russell 2000 Index. The Lipper Variable Annuity Small Cap Funds
Average earned 1.48% for the year, surpassing the portfolio and the Index.

The portfolio's net asset value per share decreased from $13.09 at December
31, 1997, to $11.86 on December 31, 1998. The porfolio made distributions
during the year of approximately $0.02 per share from ordinary income,
approximately $0.08 per share from short-term capital gains and approximately
$0.42 per share from long-term capital gains. In addition, the portfolio's
net assets advanced from approximately $5.2 million at the start of the year
to approximately $6.8 million on December 31, 1998.

18
<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE

GROWTH OF $10,000 SINCE INCEPTION

JANUARY 3, 1995 -- DECEMBER 31,1998

[GRAPH]

<TABLE>
<CAPTION>
Lipper Variable
J.P. Morgan Small Annuity Small Cap
Company Portfolio Russell 2000 Index Funds Average
<S> <C> <C> <C>
Dec-94 $10,000 $10,000 $10,000
Jun-95 $11,760 $11,442 $11,356
Dec-95 $13,287 $12,844 $12,808
Jun-96 $14,777 $14,175 $14,728
Dec-96 $16,183 $14,963 $15,466
Jun-97 $17,395 $16,489 $16,766
Dec-97 $19,284 $18,308 $18,447
Jun-98 $20,793 $19,210 $19,762
Dec-98 $18,729 $17,842 $18,718
</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 THREE SINCE
AS OF DECEMBER 31, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- --------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. MorganSmall Company Portfolio 14.99% -9.93% -5.51% 12.13% 16.99%
Russell 2000 Index** 16.31% -7.12% -2.55% 11.58% 15.57%
Lipper Variable Annuity
Small Cap Funds Average 19.97% -5.28% 1.48% 13.64% 17.40%
</TABLE>

*1/3/95 -- COMMENCEMENT OF OPERATIONS.
**THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX WHICH MEASURES THE AVERAGE
PERFORMANCE OF 2000 U.S. SMALL-CAP STOCKS. THE INDEX DOES NOT INCLUDE FEES OR
OPERATING EXPENSES AND IS NOT AVAILABLE FOR DIRECT INVESTMENT.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PORTFOLIO RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF PORTFOLIO DISTRIBUTIONS, AND REFLECT THE
REIMBURSEMENT OF PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES
NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. PORTFOLIO RETURNS DO NOT
REFLECT ANY SEPARATE ACCOUNT EXPENSES IMPOSED ON THE VARIABLE CONTRACTS. THESE
EXPENSES MAY INCLUDE A SALES CHARGE, PREMIUM TAX CHARGE, DAC TAX SALES CHARGE,
COST OF INSURANCE, MORTALITY EXPENSES, OR SURRENDER AND OTHER CHARGES.
HISTORICALLY SMALL-COMPANY STOCKS HAVE BEEN MORE VOLATILE THAN LARGE-COMPANY
STOCKS. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND
DATA.

19
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTO]

The following is an interview with STEPHEN J. RICH, a member of the portfolio
management team for the J.P. Morgan Small Company Portfolio. Steve joined Morgan
in 1991, and has held positions in Morgan's structured equity and
balanced/equity groups. He was educated at Princeton University, and obtained
his Masters in Business Administration from New York University. This interview
took place on January 15, 1999, and reflects Steve's views on that date.

HOW DID THE SMALL-CAP MARKET PERFORM DURING THE 12 MONTHS ENDED DECEMBER 31,
1998?

SR: It was a volatile and difficult period for small-cap stocks. In spite of a
strong fourth quarter, the Russell 2000 Index declined 2.55% for the 12 months.
Much of the decline occurred from June through August, with the most intense
selloff during August. Small caps lagged large caps considerably, for a couple
of reasons.

First, uncertainties in global markets - from Russia, to South America, to
Southeast Asia - caused a flight to quality. Investors saw U.S. large-cap stocks
as a more liquid and stable haven for their money than small-cap stocks. The
largest most well-known names benefited from the crisis in the world markets,
and the smaller names were punished.

Tax-loss selling was another factor hindering small stocks relative to large
caps. Even with a strong December, 1998 marked the first calendar year since
1994 that small caps, as measured by the Russell 2000 Index, posted a loss.
Investors have been taking advantage of these small-cap losses, selling their
declining small stocks in order to offset capital gains in many large-cap
stocks. Through this period, the tax-loss selling most likely exacerbated the
declines in small stocks, making it even tougher for the Russell 2000 to keep up
with the S&P 500.

After sinking to a 27 month low on October 8, however, the Russell 2000 staged
one of its strongest rallies in recent history. Since reaching its low, the
Russell 2000 surged more than 35%, finishing the quarter up 16.31%. In fact, the
fourth quarter was the strongest period for the Russell since the first quarter
of 1991. The rally was widespread and stimulated by four events: (1) the Federal
Reserve's unexpected interest rate cut, (2) perceived cheap valuations, (3)
decent earnings prospects for small cap companies, and (4) seasonal investor
buying patterns.

20
<PAGE>

HOW DID J.P. MORGAN SMALL COMPANY PORTFOLIO PERFORM DURING THE PERIOD?

SR: For the 12 months ended December 31, 1998, the portfolio declined 5.51%,
underperforming the Russell 2000 Index, which lost 2.55%. The portfolio suffered
- - along with all small-cap funds - from the indiscriminate selling of small
stocks. In this volatile market, investors fled to quality, buying the larger,
more liquid names and selling small stocks without regard to fundamental
valuations. Large stocks, perceived by investors as "stable," were the winners
in this environment. The disparity between large and small stocks was as wide as
it's ever been, as the S&P 500 Index returned 28.58% for the 12 months.

WHICH STOCKS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?

SR: Two stocks that helped the portfolio over this time period were companies
with pending mergers that were taken out of the market for cash. The portfolio
benefited from the current trend of large companies buying small companies.
DeKalb Genetics Corp., an agricultural genetics and biotechnology firm that we
had held for several years, was acquired by Monsanto Chemicals during the
period. Lifeline Systems, Inc., a consumer services company that provides home
care monitoring, is being bought by Protection One for $29.74 per share. Before
the merger was confirmed, the stock was trading at $22 per share.

We also earned good returns from D.R. Horton, Inc., the largest single-family
home builder in the U.S. The robust U.S. economy, rising incomes, low mortgage
rates, and unseasonably warm weather all contributed to the success of the
housing sector in general, and D.R. Horton, Inc. in particular. We held the
stock because we had confidence that its decentralized operating structure,
purchasing efficiencies, and tight cost controls made it a good investment
choice. Toward the end of the six months, however, the stock began to look
overvalued relative to other stocks in the consumer cyclical sector. This,
combined with our concerns about future slowing in the housing market, led us to
reduce our position in D.R. Horton, Inc.

WHICH STOCKS HAMPERED THE PORTFOLIO'S RETURNS?

SR: Capital Re Corp., a municipal reinsurer and the portfolio's largest
holding, declined nearly 35% during the period. The company suffered from a
bankruptcy filing of one of the municipalities it underwrote in conjunction with
MBIA. As a result analysts lowered estimates for 1998 and 1999 for a charge of
$0.20 per share and fear of less business from MBIA in the future, therefore we
have been reducing our position in the stock for some time.Wall Street began to
perceive that the company was expanding into riskier areas that weren't included
in its business model.

Garden Ridge Corp., a home decor retailer, plunged 36.4% in the period following
a string of negative announcements. The company reported lower-than-expected
second quarter earnings, attributing the shortfall to reduced customer traffic
and inventory disruptions caused by the installation of a new merchandise and
replenishment system during the quarter. Following a recent meeting with
management, we are concerned with Garden Ridge's ability to regain significant
levels of sales growth and renew investor confidence. As a result we have
started to opportunistically reduce the position in the portfolio.

21
<PAGE>

WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?

SR: If the markets of recent months have taught us anything, it is that it's
impossible to predict the near-term direction of stock prices. That said, there
are several factors that make us optimistic about the outlook for small-cap
stocks. The relative valuation of small caps to large caps is the best it's been
in years. Although small caps have recovered from their third-quarter downturn,
their price-to-earnings ratios are still at a discount to those of large caps -
a condition which doesn't exist very often.

Past history has shown that small caps, when battered for a prolonged period,
recover and outpace large caps. This was certainly the case after the 1989-90
bear market in small-cap stocks. This year marks the fifth consecutive year of
small caps underperforming large caps. We view small companies as attractive at
current prices.

Further, the tax-loss selling that held small caps back this season has come to
an end. We are entering a seasonally strong period for these stocks. In
addition, the market for initial public offerings appears to be gearing up once
more.

In spite of the sunny valuation picture, however, troubles still loom that could
affect the small-cap market. Slowing world economies, especially in Southeast
Asia, Russia, Japan, and Brazil, are cause for concern. The impeachment struggle
in the U.S. is another potential damper for the market. We continue to purchase
small-cap stocks that offer attractive growth rates at reasonable prices, but we
are keeping an eye on the larger macroeconomic picture as well.

22
<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

J.P. Morgan Small Company Portfolio seeks to provide a high total return from a
portfolio comprised of equity securities of small companies.The portfolio
invests at least 65% of the value of its total assets in the common stock of
small U.S. companies, primarily those with market capitalizations of less than
$1 billion. The portfolio is designed for investors who are willing to assume
the somewhat higher risk of investing in small companies in order to seek a
higher return over time than might be expected from a portfolio of stocks of
large companies.

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

- --------------------------------------------------------------------------------
NET ASSETS AS OF 12/31/98
$6,830,854

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
4/29/99

- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
4/29/99

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, 1998

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
FINANCE 21.4%
TECHNOLOGY 19.8%
CONSUMER GOODS & SERVICES 11.2%
HEALTH CARE 10.3%
BASIC INDUSTRIES 8.5%
INDUSTRIAL PRODUCTS & SERVICES 8.0%
UTILITIES 4.4%
TELECOMMUNICATIONS 3.7%
ENERGY 2.4%
SHORT-TERM & OTHER INVESTMENTS 10.3%
</TABLE>

<TABLE>
<CAPTION>
LARGEST HOLDINGS
(EXCLUDING SHORT-TERM INVESTMENTS) % OF TOTAL INVESTMENTS
- -------------------------------------------------------------------------------
<S> <C>
ALBEMARLE CORP. (BASIC INDUSTRIES) 1.7%
CARAUSTAR INDUSTRIES, INC. (BASIC INDUSTRIES) 1.6%
CONCENTRIC NETWORK CORP. (TELECOMMUNICATIONS) 1.6%
ORBITAL SCIENCES CORP. (TECHNOLOGY) 1.6%
BANK UNITED CORP., CLASS A (FINANCE) 1.5%
RENAISSANCERE HOLDINGS, LTD.(FINANCE) 1.4%
D.R. HORTON, INC. 1.3%
(INDUSTRIAL PRODUCTS & SERVICES)
CAPITAL RE CORP. (FINANCE) 1.1%
ALTERNATIVE LIVING SERVICES, INC. (HEALTH CARE) 1.1%
MUELLER INDUSTRIES, INC. (BASIC INDUSTRIES) 1.1%
</TABLE>

23
<PAGE>

J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO

PORTFOLIO REVIEW

The J.P. Morgan International Opportunities Portfolio returned 4.73% for the
year ended December 31, 1998. However, the portfolio underperformed the
14.46% return of its benchmark, the MSCI All Country World Free ex-U.S.
Index, for the same period.

The portfolio's net asset value per share decreased from $10.60 on December
31, 1997, to $10.52 on December 31, 1998, the end of the period under review,
after making distributions of approximately $0.16 per share from net
investment income, approximately $0.33 per share from long-term capital
gains, and $0.13 per share from short-term capital gains. The portfolio's net
assets advanced from $6.8 million on December 31, 1997, to $9.8 million on
December 31, 1998.

24
<PAGE>

FUND PERFORMANCE

EXAMINING PERFORMANCE

There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested in the portfolio on
January 3, 1995* would have been worth $14,040 at December 31, 1998.

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 31,1998

[GRAPH]

<TABLE>
<CAPTION>
Lipper
J.P. Morgan Variable Annuity
International MSCI All Country MSCI All Country International
Opportunities World Free World Opportunities
Portfolio ex-U.S. Index ex-U.S. Index MSCI EAFE Index Fund Average
<S> <C> <C> <C> <C> <C>
31-Dec $10,000 $10,000 $10,000 $10,000 $10,000
30-Jun $10,230 $10,149 $10,233 $10,260 $11,430
31-Dec $11,236 $10,853 $10,994 $11,121 $11,959
30-Jun $12,002 $11,461 $11,580 $11,623 $12,356
31-Dec $12,715 $11,574 $11,728 $11,793 $13,354
30-Jun $14,034 $13,065 $13,218 $13,115 $15,403
31-Dec $13,406 $11,773 $11,968 $12,003 $14,411
30-Jun $14,540 $13,147 $13,401 $13,915 $16,606
31-Dec $14,040 $13,431 $13,698 $14,403 $17,200
</TABLE>

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- ----------------------------------------
THREE SIX ONE THREE SINCE
AS OF DECEMBER 31, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- ------------------------------------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan International
Opportunities Portfolio 21.06% -3.44% 4.73% 7.71% 8.85%
MSCI All Country World Free ex-U.S. Index**** 20.42% 2.22% 14.46% 7.61% 8.18%
MSCI All Country World ex-U.S. Index*** 20.33% 2.16% 14.09% 7.36% 7.65%
MSCI EAFE Index** 20.66% 3.51% 20.00% 9.00% 9.55%
Lipper Variable Annuity
International Opportunities Fund Average 16.45% -2.68% 13.26% 11.12% 12.41%
</TABLE>

*1/3/95 -- COMMENCEMENT OF OPERATIONS.
**MSCI EAFE INDEX IS AN UNMANAGED INDEX THAT TRACKS THE AVERAGE PERFORMANCE OF
OVER 900 SECURITIES LISTED ON THE STOCK EXCHANGES OF COUNTRIES IN EUROPE,
AUSTRALIA, AND THE FAR EAST. ***MSCI ALL COUNTRY WORLD EX-U.S. INDEX IS AN
UNMANAGED INDEX THAT MEASURES DEVELOPED AND EMERGING FOREIGN STOCK MARKET
PERFORMANCE. ****MSCI ALL COUNTRY WORLD FREE EX-U.S. INDEX IS AN UNMANAGED INDEX
THAT MEASURES DEVELOPED AND EMERGING FOREIGN STOCK MARKET PERFORMANCE. THE
INDICES DO NOT INCLUDE FEES OR OPERATING EXPENSES, AND ARE NOT AVAILABLE FOR
ACTUAL INVESTMENT.

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

25
<PAGE>

PORTFOLIO MANAGER Q&A

[PHOTO]

Following is an interview with NIGEL F. EMMETT, a portfolio manager with the
International Equity Group. Nigel joined J.P. Morgan in 1997. Prior to J.P.
Morgan, he was employed by Brown Brothers Harriman & Co. in New York and
Gartmore Investment Management in London. Nigel earned a 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 January 15, 1999, and reflects Nigel's
views on that date.

HOW DID THE INTERNATIONAL MARKETS PERFORM DURING THE 12 MONTHS ENDED
DECEMBER 31, 1998?

NE: The past year saw considerable volatility as the crisis in Asia that began
in 1997 worsened and spread to Russia, and then to Latin America. Russia's
troubles, in particular, affected all global equity markets, especially Europe.

The fourth quarter of 1998 showed some improvement, however, and most of the
returns for the full year came in the last three months. The markets, which had
overreacted to negative events in the second and third quarters, rallied on
coordinated monetary easing in Europe and the U.S. At the end of the year,
international markets began to look fully valued.

Continental Europe demonstrated considerable strength on the basis of continued
corporate restructurings, increased mergers and acquisitions activity, and the
positive reaction to the advent of monetary union. We believe there is room for
further growth in Europe.

In the U.K., the economy has slowed, but we see some value there. Low inflation
has left room for further central bank easings, and we do not expect a
recession.

Japan's outlook is quite gloomy. Exacerbated by weak consumer confidence, the
country has sunk further into recession.

HOW DID THE J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO PERFORM DURING THE
12 MONTHS ENDED DECEMBER 31, 1998?

NE: The portfolio lagged its benchmark and its peers, returning 4.73% for the
full year. The MSCI All Country World Free ex-U.S. Index returned 14.46%, the
MSCI All Country World ex-U.S. Index returned 14.09%, and the Lipper Variable
Annuity Average earned 13.26%.

26
<PAGE>

The portfolio seeks to add value primarily through bottom-up stock picking, with
attention also paid to country allocation decisions and active currency
management. Over the past year, our country allocations contributed to
performance, but our stock selection and currency management held us back.

World markets in 1998 were extremely narrow. Momentum was king, as stocks that
had run continued to run. Investors flocked to the larger companies in search of
perceived stability and growth. Throughout the year, the big names paid off.

Our style, meanwhile, was punished. We seek out the cheapest stocks around the
globe, conducting proprietary analysis to determine which stocks are undervalued
and fairly valued. We do not buy stocks our research deems overvalued. In 1998,
this style of stock picking suffered. We believe, however, that good money
managers stick with their discipline, even when their style is out of favor.
Only with consistent approach can a manager earn superior long-term returns.

WHICH STOCKS ADDED TO THE PORTFOLIO'S RETURNS?

NE: We enjoyed strong returns from STMicroelectronics, a French technology
company. The stock was up 69% in the fourth quarter of 1998, after suffering
severe losses in the third quarter. This was the case with many stocks - those
that were hit too hard in the third quarter rebounded strongly in the fourth
quarter.

STMicroelectronics sells at a discount to its U.S. peers such as Motorola, and
it stands to benefit from a turnaround in the chip market that is anticipated in
late 1999.

Our holding in Vivendi, a French utility company, also contributed to our
performance. The company performed well in the fourth quarter, boosted by the
strength of its mobile phone subsidiary. We like this stock because it tempers
the growth in its phone business with earnings stability from its traditional
utility divisions.

WHICH STOCKS DETRACTED FROM THE PORTFOLIO'S RETURNS?

NE: Mitsubishi, the second largest importer/exporter in Japan, hampered the
portfolio in 1998. The company is involved in several business, including
information systems, chemicals, machinery, and food. Mitsubishi is restructuring
its steel business in order to improve efficiency, and the market reacted poorly
to several of the writeoffs the company took.

27
<PAGE>

HOW WILL EMU AFFECT THE PORTFOLIO?

NE: January 1, 1999 brought a significant event for international investors:
the start of Europe's Economic and Monetary Union (EMU). EMU represents the
effort to replace the separate currencies of eleven major European countries
(Germany, France, Belgium, the Netherlands, Luxembourg, Italy, Ireland, Spain,
Portugal, Austria, and Finland) with a single currency, the euro. While EMU
occurred after the fund's reporting period, we have already adjusted our
perspective to better position the fund for this event.

More recently, and going forward, our portfolio construction within continental
Europe will have more of a focus on identifying the most attractive stocks
within an industry across the region, rather than within each individual
country. With 11 of the 15 European Union countries having adopted the euro,
market correlation has risen and in all likelihood it will continue to do so.

Thus, the ability to add value in continental Europe through country allocation
has declined and we expect our fundemental research driven process to become
even more important going forward.

WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?

NE: While most world equity markets appear pretty fully valued, we believe
international equities offer more value. We are overweight the U.K., however,
although Japan is suffering a recession, we have found some attractive stocks in
that country. Our bottom-up stock picking has uncovered several companies in the
emerging markets that we believe demonstrate good value. We have some cautious
exposure to the Asian markets.

28
<PAGE>

PORTFOLIO FACTS

INVESTMENT OBJECTIVE

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

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

- --------------------------------------------------------------------------------
NET ASSETS AS OF 12/31/98
$9,787,610

- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE (IF APPLICABLE)
4/29/99

- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
4/29/99

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, 1998

PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
EUROPE/AFRICA 72.4%
JAPAN 12.4%
ASIA PACIFIC 6.2%
LATIN AMERICA 2.5%
CANADA 1.5%
SHORT-TERM INVESTMENTS 5.0%
</TABLE>

<TABLE>
<CAPTION>
LARGEST HOLDINGS
(EXCLUDING SHORT-TERM HOLDINGS) % OF TOTAL INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
VIVENDI (FRANCE) 3.38%
AUTOLIV, INC. (SDR) (SWEDEN) 2.29%
SWISSCOM AG (SWITZERLAND) 2.29%
SCHWEIZERISCHE RUECKVERSICHERUNGS-
GESELLSCHAFTAG (SWITZERLAND) 2.28%
IBERDROLA SA (SPAIN) 2.05%
NESTLE SA (SWITZERLAND) 2.02%
MUENCHENER RUECKVERSICHERUNGS-
GESELLSCHAFTAG (GERMANY) 1.98%
LYOLDS TSB GROUP PLC (UNITED KINGDOM) 1.88%
ZURICH ALLIED AG (SWITZERLAND) 1.83%
PHILIPS ELECTRONICS NV (NETHERLANDS) 1.82%
</TABLE>

29
<PAGE>

DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. IS
THE TRUST'S INVESTMENT ADVISOR. SHARES OF THE PORTFOLIOS PRESENTLY ARE OFFERED
ONLY TO VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE SEPARATE ACCOUNTS
ESTABLISHED BY INSURANCE COMPANIES TO FUND VARIABLE ANNUITY CONTRACTS AND
VARIABLE LIFE INSURANCE POLICIES AND QUALIFIED PENSION AND RETIREMENT PLANS
OUTSIDE THE SEPARATE ACCOUNT CONTEXT.

Shares of the portfolios and investments in the variable contracts are not bank
deposits and are not guaranteed by any bank, government entity, or the FDIC.
Return and share price will fluctuate and redemption value may be more or less
than original cost.

Reference to specific securities and their issuers are for illustrative purposes
only and should not be interpreted as recommendations to purchase or sell these
securities. There is no assurance the portfolios will continue to hold these
securities. Opinions expressed herein are subject to change without notice.

PLEASE CALL (800) 221-7930 FOR A PROSPECTUS WHICH CONTAINS MORE COMPLETE
INFORMATION, INCLUDING CONTRACT CHARGES AND DEDUCTIONS, AND PORTFOLIO FEES AND
EXPENSES. PLEASE READ THE PROSPECTUSES FOR COMPLETE DETAILS INCLUDING RISK
CONSIDERATIONS.

30
<PAGE>

THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN TREASURY MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT YIELD-TO-
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES MATURITY VALUE
- -------------- ------------------------------------------------- -------------- --------- -----------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (96.7%)
$ 2,028 United States Treasury Bills..................... 01/21/99 3.573% $ 2,023,155
-----------
OTHER INVESTMENT COMPANIES (2.7%)
56 SSGA Money Market Fund........................... 01/04/99 5.590 55,660
-----------
TOTAL INVESTMENTS (COST $2,078,815) (99.4%).................................. 2,078,815
OTHER ASSETS IN EXCESS OF LIABILITIES (0.6%)................................. 12,900
-----------
NET ASSETS (100.0%).......................................................... $ 2,091,715
-----------
-----------
</TABLE>

- ------------------------------
Note: For federal income tax purposes, the cost of securities at December 31,
1998, was substantially the same as the cost for financial statement purposes.

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

32
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT-FOREIGN (0.2%)
$ 75,000 Canadian Imperial Bank of Commerce, N.Y., 6.200%
due 08/01/00 (cost $75,011).................... Aa3/AA- $ 75,956
------------

COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (15.0%)
FINANCIAL SERVICES (15.0%)
200,000 Bear Stearns Structured Securities Inc., REMIC:
Sequential Payer, Series 1997-2, Class 1A5,
Callable, (144A), 7.000% due 08/25/36.......... Aaa/NR 201,344
75,000 BTC Mortgage Investors Trust, Series 1997-S1,
Class B, (144A), 6.445% due 12/31/09........... NR/AA 75,000
166,339 Countrywide Home Loans, Sequential Payer, Series
1998-5, Class A, Callable, 6.750% due
05/25/28....................................... NR/AAA 165,533
181,248 CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C2, Class A1,
Callable, 6.400% due 02/17/04.................. Aaa/AAA 185,156
100,000 CS First Boston Mortgage Securities Corp.,
Subordinated Bond, Series 1997-C2, Class B,
Callable, 6.720% due 11/17/07.................. Aa2/NR 104,531
168,029 Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A1,
Partially Callable, 6.220% due 09/15/07........ Aaa/NR 170,025
145,000 Discover Card Master Trust I, Series 1998-7,
Class A, Callable, 5.600% due 05/15/06......... Aaa/AAA 145,227
200,000 First Omni Bank Credit Card Master Trust, Series
1996-A, Class A, Callable, 6.650% due
09/15/03....................................... Aaa/AAA 203,084
1,280,000 First Union-Lehman Brothers-Bank of America,
Sequential Payer, Series 1998-C2, Class A2,
Partially Callable, 6.560% due 11/18/08........ Aaa/AAA 1,330,000
60,000 Green Tree Financial Corp., Sequential Payer,
Series 1994-1, Class A4, Callable, 7.200% due
04/15/19....................................... Aa2/NR 61,562
200,000 Green Tree Home Improvement Loan Trust,
Sequential Payer, AS, Series 1997-E, Class
HEA2, Callable, 6.390% due 01/15/29............ NR/AAA 204,652
11,301 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1996-A, Class
A1, Callable, 5.550% due 02/15/18.............. Aaa/AAA 11,363
1,000,000 Illinois Power Special Purpose Trust, Sequential
Payer, Series 1998-1, Class A4, SCH, Callable,
5.340% due 06/25/05(t)......................... Aaa/AAA 999,947
200,000 Morgan Stanley Capital I, Inc., REMIC: SC,
Subordinated Bond, CSTR, Series 1997-RR, Class
D, Callable, (144A), 7.740% due 04/30/39....... NR/NR 161,687
87,006 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-WF1, Class A1, Partially Callable,
6.250% due 07/15/07............................ NR/AAA 88,392
107,925 Premier Auto Trust, Sequential Payer, Series
1995-3, Class A5, Callable, 6.150% due
03/06/00....................................... Aaa/AAA 108,094
350,000 Premier Auto Trust, Sequential Payer, Series
1998-5, Class A4, Callable, 5.190% due
04/08/03....................................... Aaa/AAA 350,164
183,333 Sears Credit Account Master Trust, Series 1996-2,
Class A, Callable, 6.500% due 10/15/03......... Aaa/AAA 184,232
48,979 The Money Store Home Equity Trust, Series 1997-B,
Class A3, Callable, 6.520% due 07/15/12........ Aaa/AAA 50,035
30,182 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-A, Class A1,
Callable, 6.300% due 06/25/02.................. Aaa/AAA 30,182
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 14,323 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-B, Class A1,
Callable, 5.950% due 11/15/02.................. Aaa/AAA $ 14,324
49,785 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1997-A, Class A2,
Callable, 6.750% due 06/25/03.................. Aaa/AAA 51,108
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$4,913,053)................................ 4,895,642
------------

CONVERTIBLE BONDS (0.0%)
RETAIL (0.0%)
10,000 Corporate Express, Inc., Callable 07/01/99,
4.500% due 07/01/00 (cost $9,226).............. B3/B 8,437
------------

CORPORATE OBLIGATIONS (23.0%)
AEROSPACE (0.5%)
50,000 Lockheed Martin Corp., 6.550% due 05/15/99....... A3/BBB+ 50,189
100,000 Northrop Grumman Corp., Callable 10/15/04, 9.375%
due 10/15/24................................... Baa3/BBB- 117,615
------------
167,804
------------

APPARELS & TEXTILES (0.3%)
25,000 Fruit of the Loom, Inc., Refunding, 6.500% due
11/15/03....................................... Ba1/BB+ 23,995
25,000 Fruit of the Loom, Inc., Refunding, 7.875% due
10/15/99....................................... Ba1/BB- 25,246
15,000 Polymer Group, Inc., Series B, Callable 07/01/02,
9.000% due 07/01/07............................ B2/B 14,812
20,000 Westpoint Stevens, Inc., Callable, 7.875% due
06/15/05....................................... Ba3/BB 20,500
------------
84,553
------------

BANKING (0.2%)
50,000 Keycorp, Refunding, 8.400% due 04/01/99.......... A2/BBB+ 50,336
------------

BROADCASTING & PUBLISHING (0.2%)
27,000 Capstar Broadcasting, Callable 02/01/02, 0.000%
due 02/01/09(v)................................ B3/B- 22,207
40,000 Clear Channel Communication, Inc., Callable,
7.250% due 10/15/27............................ Baa3/BBB- 40,184
------------
62,391
------------

BUILDING MATERIALS (1.1%)
350,000 Armstrong World, Inc., 6.350% due 08/15/03....... Baa1/A- 355,796
------------

CHEMICALS (0.4%)
150,000 Cytec Industries, Inc., MOPPRS, 6.846% due
05/11/05(v).................................... Baa2/BBB 145,917
------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
ELECTRIC (1.3%)
$ 8,000 Calpine Corp., 7.875% due 04/01/08............... Ba2/BB- $ 8,040
50,000 Niagara Mohawk Power Corp., Series B, Callable,
7.000% due 10/01/00............................ Ba2/BB+ 50,626
50,000 Pacific Corp., Series H, MTN, Callable, 6.750%
due 07/15/04................................... A2/A+ 53,233
300,000 Scana Corp., Series B, MTN, 5.810% due
10/23/08....................................... A3/A 300,108
------------
412,007
------------

ELECTRONICS (0.2%)
50,000 Motorola, Inc., 7.500% due 05/15/25.............. Aa3/AA- 56,759
------------

ENERGY SOURCE (0.4%)
7,000 Cogentrix Energy, Inc., Callable, (144A), 8.750%
due 10/15/08................................... Ba1/BB+ 7,525
100,000 NGC Corp., Callable, 7.625% due 10/15/26......... Baa2/BBB+ 108,382
------------
115,907
------------

ENTERTAINMENT, LEISURE & MEDIA (1.2%)
30,000 Fox/Liberty Networks LLC, Callable 08/15/02,
8.875% due 08/15/07............................ B1/B 30,600
30,000 Jacor Communications Co., Series B, Callable
06/15/02, 8.750% due 06/15/07.................. B2/B 31,462
50,000 Lamar Advertising Co., Callable 09/15/02, 8.625%
due 09/15/07................................... B1/B 51,687
250,000 J Seagram & Sons, 7.600% due 12/15/28............ Baa3/BBB- 251,130
------------
364,879
------------

FINANCIAL SERVICES (10.2%)
250,000 Associates Corp. N.A., 6.250% due 11/01/08....... Aa3/AA- 259,580
45,000 Associates Corp. N.A., Putable, 5.960% due
05/15/37....................................... Aa3/AA- 46,323
100,000 Banc One Corp., 7.625% due 10/15/26.............. A1/A 114,399
50,000 Chrysler Financial Corp., Series P, MTN, 6.320%
due 07/14/99................................... A2/A+ 50,313
50,000 FCB/NC Capital Trust I, Callable 03/01/08, 8.050%
due 03/01/28................................... Baa3/BB+ 54,041
50,000 Ford Motor Credit Co., 6.375% due 09/15/99....... A1/A 50,457
250,000 Ford Motor Credit Co., MTN, 5.990% due
02/27/01....................................... A1/A 253,075
300,000 Ford Motor Credit Co., MTN, 7.470% due
07/29/99(t).................................... A1/A 304,104
50,000 General Motors Acceptance Corp., MTN, 5.900% due
03/06/00....................................... A2/A 50,275
50,000 Household Finance Corp., MTN, 6.780% due
04/17/01(v).................................... A2/A 51,284
300,000 Household Finance Corp., Series E, MTN, 5.519%
due 06/17/05(v)................................ A2/A 295,020
100,000 Keystone Financial Mid-Atlantic Funding, MTN,
6.500% due 05/31/08............................ Baa2/BBB+ 105,355
100,000 Nationsbank Corp., 7.250% due 10/15/25........... Aa3/A 109,464
450,000 Norwest Financial, Inc., Callable 07/15/07,
7.200% due 04/01/04............................ Aa3/A+ 480,897
100,000 Safeco Capital Trust I, 8.072% due 07/15/37...... A3/A 105,868
50,000 Sears Roebuck Acceptance Corp., Series 1, MTN,
6.220% due 03/25/99............................ A2/A- 50,131
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 400,000 Southern Co. Capital Trust II, Callable 02/15/07,
8.140% due 02/15/27............................ A3/A- $ 432,256
500,000 Toyota Motor Credit Corp., 5.625% due
11/13/03(s).................................... Aa1/AAA 504,310
------------
3,317,152
------------

HEALTH SERVICES (0.3%)
25,000 Genesis Health Ventures, Callable 06/15/00,
9.750% due 06/15/05............................ B2/B- 24,781
10,000 Paracelsus Healthcare Corp., Callable 08/15/01,
10.000% due 08/15/06........................... B3/B- 9,175
40,000 Tenet Healthcare Corp., (144A), Callable, 7.625%
due 06/01/08................................... Ba1/BB+ 40,851
15,000 Tenet Healthcare Corp., Callable 01/15/02, 8.625%
due 01/15/07................................... Ba3/BB- 16,040
------------
90,847
------------

METALS & MINING (0.2%)
50,000 P&L Coal Holdings Corp., Series B, Callable
05/15/03, 9.625% due 05/15/08.................. B2/B 50,750
------------

NATURAL GAS (0.9%)
50,000 Atlantic Richfield Co., 8.250% due 02/01/22...... A2/A 61,436
200,000 Columbia Energy Group, Series G, 7.620% due
11/28/25....................................... A3/BBB+ 215,432
------------
276,868
------------

OIL-PRODUCTION (0.1%)
30,000 Ocean Energy Inc., Series B, Callable 07/15/02,
8.875% due 07/15/07............................ B1/BB- 29,700
15,000 Plains Resources Inc., Series D, Callable
03/15/01, 10.250% due 03/15/06................. B2/B- 15,000
------------
44,700
------------

OIL-SERVICES (0.3%)
100,000 Lasmo (USA) Inc., Callable, 7.300% due
11/15/27....................................... Baa2/BBB 92,633
------------

PERSONAL CARE (0.2%)
50,000 Procter & Gamble Co., Callable, 6.450% due
01/15/26....................................... Aa2/AA 52,314
------------

POLLUTION CONTROL (0.0%)
5,000 Allied Waste North America Inc., Callable,
(144A), 7.625% due 01/01/06.................... Ba2/BB 5,063
------------

RAILROADS (0.9%)
300,000 Union Pacific Corp., 5.780% due 10/15/01......... Baa3/BBB- 296,427
------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
TELECOMMUNICATIONS (0.1%)
$ 15,000 McLeodUSA, Inc., Callable 07/15/02, 9.250% due
07/15/07....................................... B2/B+ $ 15,544
10,000 Qwest Communications International, Inc., Series
B, Callable 04/01/02, 10.875% due 04/01/07..... Ba1/BB+ 11,513
------------
27,057
------------

TELEPHONE (1.4%)
250,000 Pacific Bell/SBC Communications, Inc., 6.125% due
02/15/08(t).................................... A1/AA- 260,435
175,000 US West Capital Funding, Inc., Callable, 6.250%
due 07/15/05(s)................................ A3/A- 182,161
------------
442,596
------------

TRANSPORTATION (0.0%)
15,000 Atlantic Express Transportation Corp., Callable
02/01/01, 10.750% due 02/01/04................. B2/B 15,225
------------

UTILITIES (2.6%)
200,000 Atmos Energy Corp., Callable, 6.750% due
07/15/28....................................... A3/A- 193,046
300,000 Consolidated Edison NY, Series 98-D, Callable
10/01/08, 6.900% due 10/01/28.................. A1/A+ 307,473
350,000 Texas Utilities, 5.940% due 10/15/01(t).......... Baa3/BBB 349,878
------------
850,397
------------
TOTAL CORPORATE OBLIGATIONS (COST
$7,245,506)................................ 7,378,378
------------

FOREIGN CORPORATE OBLIGATIONS (2.7%)
CANADA (1.8%)
BROADCASTING & PUBLISHING
15,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.000% due 12/01/07........................... Ba3/BB+ 16,894

FINANCIAL SERVICES
200,000 McKesson Finance of Canada, (144A), 6.550% due
11/01/02....................................... A3/A- 204,572

FOOD, BEVERAGES & TOBACCO
25,000 Cott Corp., Callable 07/01/00, 8.500% due
05/01/07....................................... Ba3/B+ 23,313

GAS-PIPELINES
50,000 Trans-Canada Pipelines, MTN, 7.060% due
10/14/25....................................... A2/A- 50,962

OIL PRODUCTION
49,960 Express Pipeline LP, Series B, Callable, Sinking
Fund, (144A), 7.390% due 12/31/19.............. Baa3/BBB- 47,087
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
TRANSPORT & SERVICES
$ 250,000 Laidlaw Inc., 6.500% due 05/01/05................ Baa3/BBB+ $ 245,920
------------
588,748
------------

HONG KONG (0.0%)
BANKING
4,000 Bangkok Bank Public Co. Ltd, (144A), 7.250% due
09/15/05....................................... B2/B+ 2,735
------------

UNITED KINGDOM (0.9%)
ELECTRIC
300,000 United Utilities PLC, Callable, 6.250% due
08/15/05....................................... A2/A 302,130
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$890,064).................................. 893,613
------------

FOREIGN GOVERNMENT OBLIGATIONS (4.8%)
CANADA (2.2%)
175,000 Hydro-Quebec, Series HQ, 9.500% due 11/15/30..... A2/A+ 243,854
200,000 Province of Ontario, 6.000% due 02/21/06(t)...... Aa3/AA- 206,504
250,000 Province of Ontario, 7.625% due 06/22/04(t)...... Aa3/AA- 275,498
------------
725,856
------------

ITALY (0.3%)
100,000 Republic of Italy, 6.875% due 09/27/23........... Aa3/AA 108,755
------------

SUPRANATIONAL OBLIGATIONS (2.3%)
275,000 Inter-American Development Bank, 5.375% due
11/18/08....................................... Aaa/AAA 277,126
410,000 Inter-American Development Bank, 7.000% due
06/15/25....................................... Aaa/AAA 460,020
------------
737,146
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$1,530,197)................................ 1,571,757
------------

SOVEREIGN BONDS (2.2%)
ARGENTINA (0.3%)
131,600 Republic of Argentina, Series L, Callable,
Sinking Fund, 6.188% due 03/31/05(v)........... Ba3/BB 110,873
------------

BULGARIA (0.4%)
200,000 Republic of Bulgaria IAB PDI, Callable, Sinking
Fund, 6.688% due 07/28/11(v)................... B2/NR 134,500
------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
MEXICO (0.6%)
$ 50,000 Petroleos Mexicanos, (144A), 7.750% due
10/29/99....................................... Ba2/BB $ 50,000
130,000 United Mexican States Global Bonds, 11.500% due
05/15/26....................................... Ba2/BB 137,800
------------
187,800
------------

PANAMA (0.5%)
200,385 Republic of Panama PDI, Series 20 Year, 6.688%
due 07/17/16(v)................................ Ba1/BB+ 148,285
------------

POLAND (0.0%)
15,000 Republic of Poland Bearer PDI, Callable, Sinking
Fund, 5.000% due 10/27/14(v)................... Baa3/BBB- 13,950
------------

SOUTH KOREA (0.4%)
135,000 Republic of Korea Global Bonds, 8.875% due
04/15/08....................................... Ba1/BB+ 138,957
------------
TOTAL SOVEREIGN BONDS (COST $738,199)........ 734,365
------------

U.S. GOVERNMENT AGENCY OBLIGATIONS (33.0%)
FEDERAL HOME LOAN MORTGAGE CORP. (8.1%)
112,293 6.000% due 04/01/11.............................. 112,702
95,018 7.000% due 02/01/26.............................. 96,816
1,235,966 7.000% due 02/01/28.............................. 1,260,154
30,155 8.000% due 11/01/26.............................. 31,176
89,560 8.500% due 08/01/26.............................. 93,528
310,000 REMIC: PAC(11), Series 1694, Class PQ, Partially
Callable, 6.500%
due 09/15/23(t)................................ 319,272
762,254 REMIC: Sequential Payer, Series 2080, Class Z,
Partially Callable, 6.500% due 08/15/28........ 727,022
------------
2,640,670
------------

FEDERAL NATIONAL MORTGAGE ASSOCIATION (20.4%)
337,049 7.000% due 05/01/28.............................. 343,870
1,479,944 7.000% due 08/01/28.............................. 1,509,972
71,663 8.500% due 05/01/09.............................. 74,414
300,000 REMIC: PAC-1(11), Series 1993-78, Class G, 6.500%
due 11/25/07................................... 306,642
2,800,000 TBA, January, 6.000% due 12/01/28................ 2,758,875
1,640,000 TBA, January, 6.500% due 12/01/28................ 1,648,200
------------
6,641,973
------------

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (4.5%)
91,957 6.500% due 12/15/23.............................. 92,849
339,061 7.000% due 08/15/12.............................. 348,544
501,773 7.000% due 07/15/28.............................. 513,529
</TABLE>

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

39
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 424,674 7.000% due 09/15/28.............................. $ 434,624
82,264 7.500% due 02/15/27.............................. 84,790
------------
1,474,336
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $10,699,410)......................... 10,756,979
------------

U.S. TREASURY OBLIGATIONS (13.8%)
U.S. TREASURY BONDS (6.1%)
200,000 6.500% due 11/15/26(s)........................... 232,972
1,468,000 6.750% due 08/15/26(t)........................... 1,759,295
------------
1,992,267
------------

U.S. TREASURY NOTES (7.7%)
625,000 5.375% due 06/30/03(s)........................... 643,025
5,000 5.750% due 08/15/03.............................. 5,221
505,000 5.875% due 02/15/00(s)........................... 511,666
327,000 6.250% due 02/28/02(t)........................... 341,954
225,000 6.500% due 08/15/05(s)........................... 247,372
15,000 6.625% due 03/31/02.............................. 15,861
485,000 6.625% due 06/30/01(s)........................... 507,616
191,000 6.875% due 05/15/06(s)........................... 216,340
15,000 7.875% due 11/15/04.............................. 17,372
------------
2,506,427
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$4,440,521)................................ 4,498,694
------------

CONVERTIBLE PREFERRED STOCKS (0.3%)
INDUSTRIAL PRODUCTS & SERVICES (0.3%)
100 Home Ownership Funding, (144A), 13.330% due
12/30/06(v) (cost $100,104).................... Aaa/NR 94,457
------------
</TABLE>

<TABLE>
<CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS (15.2%)
U.S. TREASURY OBLIGATIONS (14.9%)
4,871,000 Bills, 3.573% due 01/21/99(s)(y)................. 4,859,346
------------
</TABLE>

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

40
<PAGE>
J.P. MORGAN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- ------------
<C> <S> <C>
OTHER INVESTMENT COMPANIES (0.3%)
$ 82,220 SSGA Money Market Fund........................... $ 82,220
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$4,941,566)................................. 4,941,566
------------
TOTAL INVESTMENTS (COST $35,582,857) (110.2%).... 35,849,844
LIABILITIES IN EXCESS OF OTHER ASSETS (-10.2%)... (3,308,388)
------------
NET ASSETS (100.0%).............................. $ 32,541,456
------------
------------
</TABLE>

- ------------------------------
Note: Based on the cost of securities of $35,583,141 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $371,974 and $105,271, respectively, resulting in net
unrealized appreciation of $266,703.

(s) - Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$4,955,798 of the market value has been segregated.

(t) - All or a portion of the security has been segregated as collateral for
when issued/TBA securities.

(v) - Rate shown reflects current rate on variable rate instruments or
instruments with step coupon.

(y) - Yield-to-maturity.

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

AS - Accelerated Security.

CSTR - Collateral Strip Rate.

IAB - Interest in Arrears Bond.

MOPPRS - Mandatory Par Put Remarked Securities.

MTN - Medium Term Note.

NR - Not rated.

PDI - Past Due Interest.

REMIC - Real Estate Mortgage Investment Conduit.

SC - Structured Collateral.

SCH - Scheduled Payment

TBA - Securities purchased (sold) on a forward commitment basis with an
approximate principal amount and no definite maturity date. The actual principal
amount and maturity date will be determined upon settlement.

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

41
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
COMMON STOCKS (89.7%)
BASIC INDUSTRIES (4.6%)
CHEMICALS (1.3%)
Rohm & Haas Co................................... 5,700 $ 171,712
Union Carbide Corp............................... 1,700 72,250
------------
243,962
------------

FOREST PRODUCTS & PAPER (2.3%)
Georgia-Pacific Group............................ 4,100 240,106
Temple-Inland, Inc............................... 3,100 183,869
------------
423,975
------------

METALS & MINING (1.0%)
Allegheny Teledyne, Inc.......................... 9,200 188,025
------------
TOTAL BASIC INDUSTRIES......................... 855,962
------------

CONSUMER GOODS & SERVICES (15.6%)
ENTERTAINMENT, LEISURE & MEDIA (3.5%)
Fox Entertainment Group, Inc., Class A+.......... 1,200 30,225
Hasbro, Inc...................................... 4,500 162,562
International Game Technology.................... 8,000 194,500
Mirage Resorts, Inc.+............................ 6,900 103,069
Seagram Company Ltd.(i).......................... 4,100 155,800
------------
646,156
------------

FOOD, BEVERAGES & TOBACCO (6.1%)
Anheuser Busch Companies, Inc.................... 1,800 118,125
General Mills, Inc............................... 2,300 178,825
PepsiCo, Inc..................................... 8,000 327,500
Philip Morris Companies, Inc..................... 6,600 353,100
Ralston-Ralston Purina Group..................... 4,400 142,450
------------
1,120,000
------------
HOUSEHOLD PRODUCTS (1.5%)
Procter & Gamble Co.............................. 3,100 283,069
------------

RETAIL (4.5%)
American Stores Co............................... 3,900 144,056
Circuit City Stores, Inc......................... 7,000 349,562
Federated Department Stores, Inc.+............... 2,900 126,331

<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
RETAIL (CONTINUED)
Toys `R' Us, Inc.+............................... 4,600 $ 77,625
Wal-Mart Stores, Inc............................. 1,700 138,444
------------
836,018
------------
TOTAL CONSUMER GOODS & SERVICES................ 2,885,243
------------

ENERGY (7.1%)
OIL-PRODUCTION (6.9%)
Atlantic Richfield Co............................ 5,600 365,400
Mobil Corp....................................... 2,300 200,387
Phillips Petroleum Co............................ 4,300 183,287
Royal Dutch Petroleum Co. (ADR).................. 3,700 177,137
Tosco Corp....................................... 13,200 341,550
------------
1,267,761
------------

OIL-SERVICES (0.2%)
Cooper Cameron Corp.+............................ 1,600 39,200
------------
TOTAL ENERGY................................... 1,306,961
------------

FINANCE (13.9%)
BANKING (8.1%)
Astoria Financial Corp........................... 3,135 144,014
BankAmerica Corp.(s)............................. 7,162 430,615
Bankers Trust Corp............................... 2,600 222,137
Citigroup, Inc................................... 7,014 347,193
Washington Mutual, Inc.(s)....................... 5,750 219,578
Wells Fargo & Co................................. 3,400 135,787
------------
1,499,324
------------

FINANCIAL SERVICES (2.0%)
American Express Co.............................. 900 92,025
CIT Group, Inc., Class A......................... 5,000 159,062
Federal National Mortgage Association............ 1,600 118,400
------------
369,487
------------

INSURANCE (2.9%)
Ambac Financial Group, Inc....................... 1,300 78,244
American International Group, Inc................ 450 43,481
Marsh & McLennan Companies, Inc.................. 2,550 149,016
UNUM Corp........................................ 4,700 274,362
------------
545,103
------------
</TABLE>

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

42
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (0.9%)
Starwood Hotels & Resorts+....................... 7,000 $ 158,813
------------
TOTAL FINANCE.................................. 2,572,727
------------
HEALTHCARE (11.3%)
BIOTECHNOLOGY (0.5%)
Genzyme Corp.+................................... 1,900 94,466
------------

HEALTH SERVICES (2.5%)
HEALTHSOUTH Corp.+............................... 8,400 129,675
Humana, Inc.+.................................... 8,000 142,500
Perkin-Elmer Corp................................ 2,000 195,125
------------
467,300
------------
PHARMACEUTICALS (8.3%)
Alza Corp.+...................................... 4,300 224,675
American Home Products Corp...................... 4,000 225,250
Bristol-Myers Squibb Co.......................... 3,100 414,819
Forest Laboratories, Inc.+....................... 1,600 85,100
Monsanto Co...................................... 10,200 484,500
Warner-Lambert Co................................ 1,300 97,744
------------
1,532,088
------------
TOTAL HEALTHCARE............................... 2,093,854
------------
INDUSTRIAL PRODUCTS & SERVICES (9.6%)
AEROSPACE (0.6%)
Boeing Co........................................ 3,500 114,188
------------

CAPITAL GOODS (0.4%)
Eaton Corp....................................... 1,000 70,688
------------
COMMERCIAL SERVICES (2.6%)
Cendant Corp.+................................... 16,400 312,625
Service Corp. International...................... 4,300 163,669
------------
476,294
------------

DIVERSIFIED MANUFACTURING (3.5%)
AlliedSignal, Inc................................ 3,500 155,094
Coltec Industries, Inc.+......................... 3,300 64,350
Cooper Industries, Inc........................... 1,100 52,456
Sensormatic Electronics Corp.+................... 800 5,550
Tyco International Ltd........................... 5,016 378,395
------------
655,845
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>

PACKAGING & CONTAINERS (0.9%)
Kimberly-Clark Corp.............................. 3,100 $ 168,950
------------

POLLUTION CONTROL (1.6%)
Waste Management, Inc............................ 6,492 302,690
------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 1,788,655
------------

TECHNOLOGY (15.8%)
COMPUTER PERIPHERALS (2.0%)
EMC Corp.+....................................... 4,400 374,000
------------

COMPUTER SOFTWARE (2.7%)
Microsoft Corp.+................................. 3,100 429,447
Oracle Corp.+.................................... 1,700 73,366
------------
502,813
------------

COMPUTER SYSTEMS (4.9%)
Compaq Computer Corp............................. 4,600 192,913
International Business Machines Corp............. 2,400 443,400
Sun Microsystems, Inc.+.......................... 3,200 273,800
------------
910,113
------------

ELECTRONICS (1.5%)
Cisco Systems, Inc.+............................. 3,000 278,531
------------

SEMICONDUCTORS (1.1%)
General Semiconductor, Inc.+..................... 900 7,369
Intel Corp....................................... 800 94,825
Texas Instruments, Inc........................... 1,200 102,675
------------
204,869
------------

TELECOMMUNICATION SERVICES (1.6%)
MCI WorldCom, Inc.+.............................. 4,000 287,125
------------

TELECOMMUNICATIONS-EQUIPMENT (2.0%)
Commscope, Inc.+................................. 6,366 107,028
Lucent Technologies, Inc......................... 2,300 253,000
------------
360,028
------------
TOTAL TECHNOLOGY............................... 2,917,479
------------
</TABLE>

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

43
<PAGE>
J.P. MORGAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------- ------------
<S> <C> <C>
TRANSPORTATION (2.2%)
RAILROADS (2.2%)
Union Pacific Corp.(s)........................... 9,000 $ 405,563
------------

UTILITIES (9.6%)
ELECTRIC (3.2%)
Central & South West Corp........................ 2,300 63,106
Northern States Power Co......................... 5,100 141,525
PP&L Resources, Inc.............................. 7,900 220,213
Texas Utilities Co............................... 3,500 163,406
------------
588,250
------------

GAS-PIPELINES (1.3%)
Columbia Energy Group............................ 4,100 236,775
------------
TELEPHONE (5.1%)
AT & T Corp...................................... 4,300 323,575
Bell Atlantic Corp.(s)........................... 2,200 116,600
GTE Corp......................................... 5,200 338,000
SBC Communications, Inc.......................... 3,200 171,600
------------
949,775
------------
TOTAL UTILITIES................................ 1,774,800
------------
TOTAL COMMON STOCKS (COST $14,706,824)......... 16,601,244
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
FIXED INCOME SECURITIES (0.6%)
U.S. TREASURY OBLIGATIONS (0.6%)
U.S. TREASURY NOTES (0.6%)
5.88% due 11/15/99 (cost $101,063)(s)............ $ 100,000 101,033
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- ------------
SHORT-TERM INVESTMENTS (9.8%)
<S> <C> <C>
OTHER INVESTMENT COMPANIES (0.3%)
SSGA Money Market Fund........................... $ 67,007 $ 67,007
------------

U.S. TREASURY OBLIGATIONS (9.5%)
U.S. Treasury Bill, 3.573% due 01/21/99(y)....... 1,756,000 1,751,726
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $1,818,733)............................. 1,818,733
------------
TOTAL INVESTMENTS (COST $16,626,620) (100.1%).................
18,521,010
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%).................
(10,122)
------------
NET ASSETS (100.0%)........................................... $ 18,510,888
------------
------------
</TABLE>

- ------------------------------
Note: Based on the cost of securities of $16,630,375 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $2,667,792 and $777,157, respectively, resulting in net
unrealized appreciation of $1,890,635.

+ - Non-income producing security.

(i) - Foreign security.

ADR - American Depositary Receipt.

(y) - Yield-to-maturity.

(s) - Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$1,273,329, of the market value has been segregated.

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

44
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
COMMON STOCKS (93.1%)
BASIC INDUSTRIES (8.7%)
CHEMICALS (3.4%)
Albemarle Corp................................... 4,900 $ 116,375
Bush Boake Allen, Inc.+.......................... 1,000 35,250
General Chemical Group, Inc...................... 900 12,487
Geon Co.......................................... 2,600 59,800
Minerals Technologies, Inc....................... 200 8,187
-----------
232,099
-----------
FOREST PRODUCTS & PAPER (2.4%)
Caraustar Industries, Inc........................ 4,000 114,000
Universal Forest Products, Inc................... 2,400 48,075
-----------
162,075
-----------

METALS & MINING (2.9%)
Commercial Metals Co............................. 2,700 74,925
Mueller Industries, Inc.+........................ 3,700 75,156
Schnitzer Steel Industries, Inc., Class A........ 1,500 21,797
Steel Technologies, Inc.......................... 800 5,500
USEC, Inc........................................ 1,500 20,812
-----------
198,190
-----------
TOTAL BASIC INDUSTRIES......................... 592,364
-----------

CONSUMER GOODS & SERVICES (11.4%)
APPARELS & TEXTILES (0.3%)
Columbia Sportwear Co.+.......................... 600 10,087
Interface, Inc................................... 1,100 10,209
-----------
20,296
-----------
AUTOMOTIVE (0.7%)
Amcast Industrial Corp........................... 900 17,212
Sonic Automotive, Inc.+.......................... 900 30,994
-----------
48,206
-----------

BROADCASTING & PUBLISHING (1.4%)
Banta Corp....................................... 600 16,425
Emmis Communications Corp., Class A+............. 500 21,687
HA-LO Industries, Inc.+.......................... 1,500 56,437
Journal Register Co.+............................ 200 3,000
-----------
97,549
-----------

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

EDUCATION (1.2%)
Education Management Corp.+...................... 1,400 $ 32,944
ITT Educational Services, Inc.+.................. 1,400 47,600
-----------
80,544
-----------

ENTERTAINMENT, LEISURE & MEDIA (1.9%)
Cinar Films Inc., Class B+....................... 1,100 27,706
Imax Corp.+...................................... 1,900 60,206
MGM Grand, Inc.+................................. 500 13,562
Steiner Leisure Ltd.(i)+......................... 1,000 31,969
-----------
133,443
-----------

FOOD, BEVERAGES & TOBACCO (0.8%)
American Italian Pasta Co., Class A+............. 900 23,737
Beringer Wine Estates Holdings, Inc., Class B+... 400 17,812
Coors (Adolph) Co................................ 200 11,294
-----------
52,843
-----------

HOUSEHOLD APPLIANCES & FURNISHINGS (0.7%)
Bush Industries, Inc., Class A................... 1,400 17,412
Select Comfort Corp.+............................ 100 2,669
Stanley Furniture Co., Inc.+..................... 1,500 27,750
-----------
47,831
-----------

RESTAURANTS & HOTELS (0.9%)
CEC Entertainment, Inc.+......................... 1,000 27,750
Extended Stay America, Inc.+..................... 1,400 14,700
P.F. Chang's China Bistro, Inc.+................. 200 4,487
Papa John's International, Inc.+................. 400 17,625
-----------
64,562
-----------

RETAIL (3.5%)
Fingerhut Companies, Inc......................... 1,700 26,244
Garden Ridge Corp.+.............................. 3,900 35,344
Lithia Motors, Inc., Class A+.................... 2,200 36,162
O'Reilly Automotive, Inc.+....................... 200 9,412
PETsMART, Inc.+.................................. 2,500 27,031
School Specialty, Inc.+.......................... 800 17,200
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
RETAIL (CONTINUED)
ShopKo Stores, Inc.+............................. 1,600 $ 53,200
Urban Outfitters, Inc.+.......................... 1,800 31,331
-----------
235,924
-----------
TOTAL CONSUMER GOODS & SERVICES................ 781,198
-----------
ENERGY (2.4%)
GAS EXPLORATION (1.8%)
Devon Energy Corp................................ 1,200 36,825
Newfield Exploration Co.+........................ 2,300 48,012
St. Mary Land & Exploration Co................... 1,100 20,556
Tesoro Petroleum Corp.+.......................... 1,500 18,187
-----------
123,580
-----------

OIL-SERVICES (0.6%)
Input/Output, Inc.+.............................. 1,600 11,700
National-Oilwell, Inc.+.......................... 1,200 13,425
Smith International, Inc.+....................... 700 17,631
-----------
42,756
-----------
TOTAL ENERGY................................... 166,336
-----------

FINANCE (21.8%)
BANKING (9.8%)
BancorpSouth, Inc.+.............................. 300 5,419
Bank of Commerce................................. 1,500 24,937
Bank United Corp., Class A....................... 2,600 101,806
Banknorth Group, Inc............................. 1,100 41,387
Colonial BancGroup, Inc.......................... 4,900 58,800
Commercial Federal Corp.......................... 950 22,028
Community First Bankshares, Inc.................. 2,000 42,062
FirstFed Financial Corp.+........................ 3,400 60,775
Flagstar Bancorp, Inc............................ 1,700 45,369
GBC Bancorp...................................... 1,000 25,656
Hamilton Bancorp, Inc.+.......................... 300 7,894
HUBCO, Inc....................................... 1,916 58,019
Irwin Financial Corp............................. 300 8,081
National Commerce Bancorporation................. 3,100 57,641
Prime Bancshares, Inc............................ 700 11,944
Republic Banking Corp. of Florida................ 1,500 15,797
Southwest Bancorporation of Texas, Inc.+......... 500 8,906
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
BANKING (CONTINUED)

Summit Bancshares, Inc........................... 200 $ 3,725
Sun Bancorp, Inc.+............................... 300 5,569
TeleBanc Financial Corp.+........................ 600 20,512
Trustco Bank Corp................................ 849 25,470
Westamerica Bancorporation....................... 500 18,391
-----------
670,188
-----------

FINANCIAL SERVICES (2.5%)
Allied Capital Corp.............................. 700 12,141
Amresco, Inc.+................................... 1,500 13,172
ARM Financial Group, Inc......................... 1,200 26,625
Heller Financial, Inc............................ 500 14,687
Investors Financial Services Corp................ 100 5,969
Litchfield Financial Corp........................ 1,505 28,971
Ocwen Financial Corp.+........................... 1,900 23,394
Willis Lease Finance Corp.+...................... 2,800 44,450
-----------
169,409
-----------

INSURANCE (3.1%)
Annuity and Life Re (Holdings) Ltd.(i)........... 1,400 37,450
Capital Re Corp.................................. 3,900 78,244
MONY Group, Inc.+................................ 100 3,131
RenaissanceRe Holdings Ltd.(i)................... 2,600 95,225
-----------
214,050
-----------

REAL ESTATE INVESTMENT TRUSTS (6.4%)
Arden Realty Group, Inc.......................... 1,600 37,100
Burnham Pacific Properties, Inc.................. 2,700 32,569
CBL & Associates Properties, Inc................. 800 20,650
Charles E. Smith Residential Realty, Inc......... 300 9,637
Cousins Properties, Inc.......................... 2,000 64,500
ElderTrust....................................... 400 4,600
Federal Realty Investment Trust+................. 100 2,362
LaSalle Hotel Properties......................... 900 9,337
Macerich Co...................................... 900 23,062
Manufactured Home Communities, Inc............... 1,700 42,606
Meristar Hospitality Corp........................ 1,732 32,150
Mills Corp....................................... 700 13,912
National Golf Properties, Inc.................... 1,000 28,938
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Post Properties, Inc............................. 1,669 $ 64,152
Weeks Corp....................................... 1,900 53,556
-----------
439,131
-----------
TOTAL FINANCE.................................. 1,492,778
-----------
HEALTHCARE (10.6%)
BIOTECHNOLOGY (4.3%)
Affymetrix, Inc.+................................ 200 4,831
Applied Analytical Industries, Inc.+............. 3,100 54,250
Human Genome Sciences, Inc.+..................... 2,100 74,484
IDEC Pharmaceuticals Corp.+...................... 700 32,944
Incyte Pharmaceuticals, Inc.+.................... 800 29,850
Millennium Pharmaceuticals, Inc.+................ 1,500 38,719
SangStat Medical Corp.+.......................... 2,600 55,575
-----------
290,653
-----------

HEALTH SERVICES (2.8%)
Alternative Living Services, Inc.+............... 2,260 77,405
Eclipsys Corp.+.................................. 200 5,788
IDX Systems Corp.+............................... 400 17,625
Lifeline Systems, Inc.+.......................... 200 5,050
Pediatrix Medical Group, Inc.+................... 700 41,956
Renal Care Group, Inc.+.......................... 1,050 30,450
Sunrise Assisted Living, Inc.+................... 300 15,506
-----------
193,780
-----------

MEDICAL SUPPLIES (2.6%)
CONMED Corp.+.................................... 800 26,300
Endocardial Solutions, Inc.+..................... 600 5,925
Focal, Inc.+..................................... 1,000 9,563
Kensey Nash Corp.+............................... 2,500 20,547
ResMed, Inc.+.................................... 400 18,150
Sola International, Inc.+........................ 1,700 29,325
Ventana Medical Systems, Inc.+................... 2,800 60,375
Vital Signs, Inc................................. 300 5,278
-----------
175,463
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

PHARMACEUTICALS (0.9%)
Kos Pharmaceuticals, Inc.+....................... 1,300 $ 7,597
Ligand Pharmaceuticals, Class B+................. 3,700 42,897
U.S. Bioscience, Inc.+........................... 1,200 8,625
-----------
59,119
-----------
TOTAL HEALTHCARE............................... 719,015
-----------

INDUSTRIAL PRODUCTS & SERVICES (8.1%)
BUILDING MATERIALS (0.5%)
Comfort Systems USA, Inc.+....................... 900 16,088
Service Experts, Inc.+........................... 700 20,475
-----------
36,563
-----------

CAPITAL GOODS (2.6%)
ABC Rail Products Corp.+......................... 500 6,141
Applied Power, Inc., Class A..................... 500 18,875
IDEX Corp........................................ 1,650 40,425
MagneTek, Inc.+.................................. 1,800 20,813
Modine Manufacturing Co.......................... 1,400 50,663
Shaw Group, Inc.+................................ 1,400 11,200
Wabash National Corp............................. 1,600 32,500
-----------
180,617
-----------

COMMERCIAL SERVICES (1.0%)
Century Business Services, Inc.+................. 400 5,763
On Assignment, Inc.+............................. 500 17,078
Pinkertons, Inc.+................................ 1,000 21,313
Source Information Management Co.+............... 900 10,350
Wackenhut Corrections Corp.+..................... 500 14,313
-----------
68,817
-----------

CONSTRUCTION & HOUSING (1.3%)
D.R. Horton, Inc................................. 3,954 90,942
-----------

DIVERSIFIED MANUFACTURING (0.5%)
Intermet Corp.................................... 2,400 31,350
-----------

ELECTRICAL EQUIPMENT (1.0%)
Anixter International, Inc.+..................... 3,400 69,063
-----------

MACHINERY (0.2%)
Sauer, Inc....................................... 1,700 12,856
-----------
</TABLE>

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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
MANUFACTURING (0.3%)
AptarGroup, Inc.+................................ 500 $ 14,031
Rock of Ages Corp.+.............................. 400 5,600
-----------
19,631
-----------

PACKAGING & CONTAINERS (0.4%)
Ivex Packaging Corp.+............................ 1,200 27,900
-----------

POLLUTION CONTROL (0.3%)
Tetra Technologies, Inc.+........................ 1,700 18,594
-----------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 556,333
-----------

TECHNOLOGY (20.1%)
AEROSPACE (2.1%)
L-3 Communications Holdings, Inc.+............... 700 32,594
Orbital Sciences Corp.+.......................... 2,450 108,413
-----------
141,007
-----------
COMPUTER PERIPHERALS (2.8%)
Bolder Technologies Corp.+....................... 400 4,900
HMT Technology Corp.+............................ 4,200 53,813
Hutchinson Technology, Inc.+..................... 900 31,866
Maxtor Corp.+.................................... 3,700 52,031
Pinnacle Systems, Inc.+.......................... 700 24,806
Proxim, Inc.+.................................... 900 24,047
-----------
191,463
-----------

COMPUTER SOFTWARE (6.3%)
Aspect Development, Inc.+........................ 800 35,750
Aspen Technologies, Inc.+........................ 1,200 17,325
BroadVision, Inc.+............................... 1,300 42,047
Concord Communications, Inc.+.................... 100 5,725
Concur Technologies, Inc.+....................... 100 3,022
Exchange Applications, Inc.+..................... 100 1,956
HNC Software, Inc.+.............................. 1,500 60,656
Legato Systems, Inc.+............................ 600 39,544
Macromedia, Inc.+................................ 1,200 40,388
MAPICS, Inc.+.................................... 2,800 46,725
MicroStrategy, Inc.+............................. 1,100 34,375
New Era of Networks, Inc.+....................... 400 17,550
Transaction Systems Architects, Inc., Class A+... 700 35,219
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)

TSI International Software Ltd.(i)+.............. 200 $ 9,675
Visio Corp.+..................................... 1,100 39,909
-----------
429,866
-----------

COMPUTER SYSTEMS (0.8%)
Avid Technology, Inc.+........................... 600 14,063
Digital River, Inc.+............................. 400 14,300
Equant NV-NY Registered Shares+.................. 200 13,563
Quickturn Design System, Inc.+................... 1,100 15,709
-----------
57,635
-----------

INFORMATION PROCESSING (3.3%)
CNET, Inc.+...................................... 300 15,984
Condor Technology Solutions, Inc.+............... 2,000 19,875
CSG Systems International, Inc.+................. 700 55,213
Exodus Communications, Inc.+..................... 1,100 71,019
Metro Information Services, Inc.+................ 1,100 32,519
Pegasus Systems, Inc.+........................... 600 21,525
Visual Networks, Inc.+........................... 300 11,241
-----------
227,376
-----------

SEMICONDUCTORS (3.5%)
Applied Mircro Circuits Corp.+................... 900 30,600
ATMI, Inc.+...................................... 1,900 48,094
Cognex Corp.+.................................... 500 9,969
Exar Corp.+...................................... 900 14,513
Integrated Device Technology, Inc.+.............. 3,500 21,383
SDL, Inc.+....................................... 1,200 47,438
SIPEX Corp.+..................................... 1,000 35,469
Veeco Instruments, Inc.+......................... 600 31,725
-----------
239,191
-----------

TELECOMMUNICATIONS-EQUIPMENT (1.3%)
ANTEC Corp.+..................................... 700 14,131
Excel Switching Corp.+........................... 1,800 68,681
Tekelec+......................................... 300 4,978
-----------
87,790
-----------
TOTAL TECHNOLOGY............................... 1,374,328
-----------
</TABLE>

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

48
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
TELECOMMUNICATIONS (3.8%)
TELECOMMUNICATION SERVICES (3.8%)
Concentric Network Corp.+........................ 3,300 $ 110,241
Global Crossing Ltd.(i)+......................... 800 36,050
Intermedia Communications, Inc.+................. 500 8,656
MetroNet Communications Corp., Class B+.......... 2,000 67,000
NEXTLINK Communications, Inc., Class A+.......... 300 8,588
Teligent, Inc., Class A+......................... 900 25,931
-----------
256,466
-----------
TOTAL TELECOMMUNICATIONS....................... 256,466
-----------
TRANSPORTATION (1.8%)
RAILROADS (0.2%)
Genesee & Wyoming Inc., Class A+................. 1,000 12,625
-----------
TRANSPORT & SERVICES (0.5%)
C.H. Robinson Worldwide, Inc.+................... 1,200 31,088
-----------
TRUCK & FREIGHT CARRIERS (1.1%)
Allied Holdings, Inc.+........................... 1,700 24,438
American Freightways Corp.+...................... 700 8,072
Jevic Transportation, Inc.+...................... 100 763
Werner Enterprises, Inc.......................... 2,475 43,777
-----------
77,050
-----------
TOTAL TRANSPORTATION........................... 120,763
-----------
UTILITIES (4.4%)
ELECTRIC (1.8%)
Central Hudson Gas & Electric Corp............... 1,400 62,650
Cleco Corp....................................... 1,700 58,331
-----------
120,981
-----------

NATURAL GAS (2.0%)
Atmos Energy Corp................................ 2,000 64,500
Public Service Company of North Carolina, Inc.... 700 18,200
Wicor, Inc....................................... 2,500 54,531
-----------
137,231
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -----------
<S> <C> <C>

TELEPHONE (0.0%)
ITC DeltaCom, Inc.+.............................. 200 $ 3,038
-----------

WATER (0.6%)
American States Water Co......................... 300 8,175
E'Town Corp...................................... 700 33,163
-----------
41,338
-----------
TOTAL UTILITIES................................ 302,588
-----------
TOTAL COMMON STOCKS (COST $5,824,729).......... 6,362,169
-----------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.8%)
OTHER INVESTMENT COMPANIES (0.6%)
SSGA Money Market Fund........................... $ 39,091 39,091
-----------

U.S. TREASURY OBLIGATIONS (8.2%)
U.S.Treasury Bills, 3.573% due 1/21/99(y)........ 562,000 560,650
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $599,741)... 599,741
-----------
TOTAL INVESTMENTS
(COST $6,424,470) (101.9%).................................. 6,961,910
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.9%).................
(131,056)
-----------
NET ASSETS (100.0%)........................................... $ 6,830,854
-----------
-----------
</TABLE>

- ------------------------------
Note: Based on the cost of investments of $6,477,942 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized apreciation and
depreciation was $958,639 and $474,671, respectively, resulting in net
unrealized appreciation of $483,968.

+ - Non-income producing security.

(i) - Foreign security.

(y) - Yield-to-maturity.

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

49
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
COMMON STOCK (90.6%)
ARGENTINA (0.7%)
YPF Sociedad Anonima (Spon. ADR)
(Oil-Production)............................... 2,310 $ 64,536
-----------

AUSTRALIA (2.7%)
News Corp. Ltd. (Broadcasting & Publishing)...... 6,600 43,639
QBE Insurance Group Ltd. (Insurance)............. 21,600 89,428
Telstra Corp. Ltd. (Telecommunication
Services)+..................................... 5,100 23,868
WBK STRYPES Trust (Banking)...................... 800 25,250
Westpac Banking Corp. Ltd. (Banking)............. 12,528 83,911
-----------
266,096
-----------
AUSTRIA (0.7%)
Bank Austria AG (Banking)........................ 1,400 71,230
-----------

BELGIUM (0.5%)
PetroFina SA (Oil-Production).................... 100 45,848
-----------

CANADA (1.5%)
Royal Bank of Canada (Banking)................... 2,900 144,533
-----------

CHILE (0.0%)
Compania de Telecomunicaciones de Chile SA (Spon.
ADR) (Telecommunication Services).............. 63 1,303
-----------

CZECH REPUBLIC (0.0%)
Central European Media Enterprises Ltd., Class A
(Entertainment, Leisure & Media)+.............. 200 1,312
-----------

DENMARK (2.4%)
Danisco A/S (Food, Beverages & Tobacco).......... 1,750 94,864
GN Store Nord A/S
(Telecommunications-Equipment)................. 4,000 141,413
-----------
236,277
-----------

FINLAND (1.0%)
Rautaruukki OYJ, K Shares (Metals & Mining)...... 15,600 101,365
-----------

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

FRANCE (15.2%)
Canal Plus (Broadcasting & Publishing)........... 200 $ 54,601
Carrefour SA (Retail)............................ 116 87,612
Christian Dior SA (Retail)....................... 700 77,443
Compagnie de Saint Gobain (Building Materials)... 185 26,130
Compagnie Financiere de Paribas (Financial
Services)...................................... 1,899 165,117
Elf Aquitaine SA (Oil-Services).................. 978 113,102
Lagardere S.C.A. (Multi - Industry).............. 1,866 79,337
Rhodia SA (Chemicals)+........................... 5,694 86,643
Sanofi SA (Pharmaceuticals)...................... 700 115,288
Societe Generale (Banking)....................... 779 126,207
STMicroelectronics NV (Electronics)+............. 1,410 111,063
Total SA, B Shares (Oil-Services)................ 1,111 112,572
Vivendi (Utilities).............................. 1,264 328,105
-----------
1,483,220
-----------

GERMANY (8.1%)
BASF AG (Chemicals).............................. 2,700 103,103
Merck KGaA (Pharmaceuticals)..................... 1,100 49,534
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance).................................... 396 191,875
RWE AG (Utilities)............................... 2,960 162,171
Schering AG (Pharmaceuticals).................... 903 113,449
VEBA AG (Utilities).............................. 2,910 174,196
-----------
794,328
-----------

GREECE (0.0%)
Hellenic Telecommunication Organization SA-OTE
(Telecommunications)........................... 57 1,516
-----------

HONG KONG (1.6%)
Dao Heng Bank Group Ltd. (Banking)............... 36,000 111,294
SmarTone Telecommunications Holdings Ltd.
(Telecommunication Services)................... 15,000 41,629
-----------
152,923
-----------

ITALY (1.6%)
Bayerische Vita SPA (Insurance)+................. 3,000 19,195
Telecom Italia SPA - RNC (Telecommunication
Services)...................................... 22,100 139,391
-----------
158,586
-----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
JAPAN (12.3%)
DDI Corp. (Telecommunications)................... 40 $ 148,941
Fanuc Ltd. (Machinery)........................... 2,000 68,619
Fujitsu Ltd. (Computer Systems).................. 8,000 106,741
Ito - Yokado Co. Ltd. (Retail)................... 1,000 70,038
Mitsubishi Chemical Corp. (Chemicals)............ 29,000 61,190
Mitsubishi Corp. (Wholesale & International
Trade)......................................... 19,000 109,489
Mitsui Trust & Banking Co. Ltd. (Banking)........ 21,000 24,017
Rohm Co. Ltd. (Electrical Equipment)............. 1,000 91,226
Sony Corp. (Electronics)......................... 1,300 94,852
Tadano Ltd. (Machinery).......................... 17,000 49,283
Taiheiyo Cement Corp. (Building Materials)....... 21,000 52,688
Takeda Chemical Industries (Chemicals)........... 3,000 115,695
Tostem Corp. (Construction & Housing)............ 4,000 79,435
Yamanouchi Pharmaceutical Co. Ltd.
(Pharmaceuticals).............................. 4,000 129,082
-----------
1,201,296
-----------

MEXICO (1.0%)
Grupo Televisa SA (Spon. GDR) (Broadcasting &
Publishing)+................................... 3,800 93,812
-----------
NETHERLANDS (4.1%)
Laurus NV (Retail)............................... 3,070 77,541
Philips Electronics NV (Electronics)............. 2,624 176,176
TNT Post Group NV (Transport & Services)......... 400 12,895
Unilever NV (Food, Beverages & Tobacco).......... 320 27,368
Vendex NV (Retail)............................... 2,600 63,176
Wolters Kluwer NV (Broadcasting & Publishing).... 200 42,821
-----------
399,977
-----------
NEW ZEALAND (0.2%)
Fletcher Challenge Paper Division Ltd. (Forest
Products & Paper).............................. 34,300 23,011
-----------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>

NORWAY (1.2%)
Sparebanken NOR (Banking)........................ 3,960 $ 76,926
Stolt - Nielsen SA (Spon. ADR)
(Transportation)............................... 4,240 43,195
-----------
120,121
-----------

PAKISTAN (0.6%)
Pakistan Telecommunications Corp. (GDR)
(Telecommunications)........................... 1,590 60,786
-----------

PHILIPPINES (0.2%)
First Philippine Holdings Corp., Class B (Multi -
Industry)...................................... 43,900 23,700
-----------

PORTUGAL (0.6%)
Banco Pinto & Sotto Mayor SA (Banking)........... 3,326 63,061
-----------

RUSSIA (0.3%)
Surgutneftegaz (Spon. ADR) (Oil-Production)...... 9,700 30,312
-----------

SOUTH AFRICA (1.8%)
ABSA Group Ltd. (Banking)........................ 6,200 29,405
AngloGold Ltd. (Metals & Mining)................. 1,989 77,496
South Africa Breweries Ltd. (Food, Beverages &
Tobacco)....................................... 3,900 65,767
-----------
172,668
-----------

SOUTH KOREA (0.0%)
Samsung Electronics Co. Ltd. (GDR)(144A)
(Electronics)+................................. 4 155
-----------

SPAIN (3.8%)
Acerinox SA (Metals & Mining).................... 2,126 49,590
ACS, Actividades de Construccion y Servicios SA
(Construction & Housing)....................... 3,000 118,568
Iberdrola SA (Electric).......................... 10,600 198,622
-----------
366,780
-----------

SWEDEN (3.9%)
ABB AB, A Shares (Machinery)..................... 4,800 51,224
Autoliv, Inc. (SDR) (Automotive Supplies)........ 6,200 222,588
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
SWEDEN (CONTINUED)
Stora Enso OYJ, A Shares (Forest Products &
Paper)+........................................ 4,422 $ 38,189
Stora Enso OYJ, R Shares (Forest Products &
Paper)+........................................ 8,205 71,871
-----------
383,872
-----------
SWITZERLAND (11.8%)
Nestle SA (Food, Beverages & Tobacco)............ 90 195,925
Roche Holding AG (Pharmaceuticals)............... 14 170,836
Schweizerische Rueckversicherungs-Gesellschaft
(Insurance).................................... 85 221,616
Swisscom AG (Telecommunication Services)+........ 530 221,881
UBS AG (Banking)................................. 540 165,914
Zurich Allied AG (Insurance)..................... 240 177,709
-----------
1,153,881
-----------

TURKEY (0.1%)
Yapi ve Kredi Bankasi AS (Banking)............... 659,270 7,630
-----------

UNITED KINGDOM (12.7%)
Allied Zurich PLC (Insurance)+................... 6,750 101,581
British American Tobacco PLC (Food, Beverages &
Tobacco)....................................... 6,750 59,522
British Petroleum Co. PLC (Oil-Services)......... 8 119
Cable & Wireless PLC (Telecommunications)........ 6,900 84,494
Hays PLC (Commercial Services)................... 4,000 35,273
Lloyds TSB Group PLC (Banking)................... 12,800 182,512
LucasVarity PLC (Automotive Supplies)............ 17,700 59,193
National Power PLC (Electric).................... 5,000 43,176
PIC International Group PLC (Food, Beverages &
Tobacco)....................................... 19,508 24,668
Royal & Sun Alliance Insurance Group PLC
(Insurance).................................... 9,200 75,119
Shell Transport & Trading Co. (Oil-Services)..... 18,100 111,425
SmithKline Beecham PLC (Pharmaceuticals)......... 8,500 119,502
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- -----------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Tate & Lyle PLC (Food, Beverages & Tobacco)...... 24,000 $ 129,377
Unilever PLC (Food, Beverages & Tobacco)......... 9,600 108,134
Zeneca Group PLC (Pharmaceuticals)............... 2,440 106,445
-----------
1,240,540
-----------
TOTAL COMMON STOCK (COST $8,364,996)........... 8,864,675
-----------
</TABLE>

<TABLE>
<S> <C> <C>
PREFERRED STOCK (2.9%)
AUSTRALIA (0.9%)
News Corp. Ltd. (Broadcasting & Publishing)...... 14,600 88,924
-----------

BRAZIL (0.8%)
Tele Norte Leste Participacoes SA (ADR)
(Telecommunication Services)................... 6,549 81,453
-----------

GERMANY (1.2%)
GEA AG (Manufacturing)........................... 3,000 72,049
Volkswagen AG (Automotive)....................... 780 38,871
-----------
110,920
-----------
TOTAL PREFERRED STOCK (COST $291,831).......... 281,297
-----------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
CONVERTIBLE BONDS (0.7%)
(IN GBP)
---------
UNITED KINGDOM (0.7%)
Compass Group PLC, 5.75% due 10/05/07 (Food,
Beverages & Tobacco) (cost $67,028)............ 25,000 72,479
-----------
</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, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- --------- -----------
SHORT-TERM INVESTMENTS (5.0%)
<S> <C> <C>
OTHER INVESTMENT COMPANIES (5.0%)
SSGA Money Market Fund (cost $488,131)........... $488,131 $ 488,131
-----------
TOTAL INVESTMENTS (COST $9,211,986) (99.2%).................
9,706,582
OTHER ASSETS IN EXCESS OF LIABILITIES (0.8%)................
81,028
-----------
NET ASSETS (100.0%)......................................... $ 9,787,610
-----------
-----------
</TABLE>

- ------------------------------
Note: Based on the cost of invesetments of $9,280,127 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $1,060,636 and $634,181 respectively, resulting in net
unrealized appreciation of $426,455.

+ - Non-income producing security.

ADR - American Depositary Receipt.

GBP - British Pounds.

GDR - Global Depositary Receipt.

SDR - Swedish Depositary Receipt.

Spon. ADR - Sponsored ADR.

Spon. GDR - Sponsored GDR.

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

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, 1998
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION

<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
----------
<S> <C>
Banking.......................................... 11.46%
Insurance........................................ 9.03%
Pharmaceuticals.................................. 8.28%
Food, Beverage & Tobacco......................... 8.02%
Utilities........................................ 6.85%
Telecommunication Services....................... 5.25%
Short Term Investments........................... 5.03%
Electronics...................................... 3.94%
Retail........................................... 3.87%
Chemicals........................................ 3.78%
Oil-Services..................................... 3.47%
Broadcasting & Publishing........................ 3.34%
Telecommunications............................... 3.05%
Automotive Supplies.............................. 2.90%
Electric......................................... 2.49%
Metals & Mining.................................. 2.35%
Construction & Housing........................... 2.04%
Machinery........................................ 1.74%
Financial Services............................... 1.70%
Telecommunications-Equipment..................... 1.46%
Oil-Production................................... 1.45%
Forest Products & Paper.......................... 1.37%
Wholesale & International Trade.................. 1.13%
Computer Systems................................. 1.10%
Multi-Industry................................... 1.06%
Electrical Equipment............................. 0.94%
Building Materials............................... 0.81%
Manufacturing.................................... 0.74%
Transportation................................... 0.45%
Automotive....................................... 0.40%
Commercial Services.............................. 0.36%
Transport & Services............................. 0.13%
Entertainment, Leisure & Media................... 0.01%
----------
100.00%
----------
----------
</TABLE>

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

54
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)

55
<PAGE>
J.P. MORGAN SERIES TRUST II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
J.P. MORGAN J.P. MORGAN J.P. MORGAN
TREASURY J.P. MORGAN J.P. MORGAN SMALL INTERNATIONAL
MONEY MARKET BOND EQUITY COMPANY OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 2,078,815 $ 35,582,857 $16,626,620 $ 6,424,470 $ 9,211,986
Foreign Currency, at Cost -- -- -- -- 58,833
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
Investments, at Value $ 2,078,815 $ 35,849,844 $18,521,010 $ 6,961,910 $ 9,706,582
Foreign Currency at Value -- -- -- -- 59,133
Receivable for Investments Sold -- 769,824 17,126 16,702 59,311
Dividends Receivable -- -- 21,855 5,802 11,084
Interest Receivable 193 297,965 1,142 508 1,914
Foreign Tax Reclaim Receivable -- -- -- -- 16,358
Receivable for Expense Reimbursement 32,548 40,317 27,392 50,314 58,209
Variation Margin Receivable -- 235 4,069 -- --
Unrealized Appreciation of Forward Foreign
Currency Contracts -- 23,021 -- -- 9,458
Deferred Organization Expenses 1,978 1,978 1,978 1,978 1,978
Prepaid Trustees' Fees 271 8,636 4,408 -- 2,281
Prepaid Expenses and Other Assets 492 7,021 3,367 1,177 2,956
------------- ------------- ------------ ------------- -------------
Total Assets 2,114,297 36,998,841 18,602,347 7,038,391 9,929,264
------------- ------------- ------------ ------------- -------------
LIABILITIES
Payable for Investments Purchased -- 4,400,452 41,207 163,321 61,690
Payable to Custodian -- -- -- -- 13,056
Advisory Fee Payable 355 7,969 5,829 3,187 4,815
Custody Fee Payable 873 8,321 10,433 11,997 21,808
Administration Fee Payable 19 36 25 -- 2
Unrealized Depreciation of Forward Foreign
Currency Contracts -- 11,054 -- -- 5,129
Accrued Expenses 21,335 29,553 33,965 29,032 35,154
------------- ------------- ------------ ------------- -------------
Total Liabilities 22,582 4,457,385 91,459 207,537 141,654
------------- ------------- ------------ ------------- -------------
NET ASSETS $ 2,091,715 $ 32,541,456 $18,510,888 $ 6,830,854 $ 9,787,610
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
Shares of Beneficial Interest Outstanding (no
par value, unlimited shares authorized) 227,345 2,789,303 1,168,513 576,010 930,051
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
Net Asset Value, Offering and Redemption
Price per Share $ 9.20 $ 11.67 $ 15.84 $ 11.86 $ 10.52
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
ANALYSIS OF NET ASSETS
Paid-in Capital $ 2,079,785 $ 31,896,965 $16,348,462 $ 6,541,667 $ 9,978,965
Undistributed (Distributions in Excess of)
Net Investment Income 11,946 229,113 13,606 4,416 (1,168)
Accumulated (Distributions in Excess of) Net
Realized Gain (Loss) on Investments,
Futures and Foreign Currency Contracts and
Transactions (16) 124,287 190,860 (252,669) (690,324)
Net Unrealized Appreciation of Investments,
Futures and Foreign Currency Contracts and
Translations -- 291,091 1,957,960 537,440 500,137
------------- ------------- ------------ ------------- -------------
Net Assets $ 2,091,715 $ 32,541,456 $18,510,888 $ 6,830,854 $ 9,787,610
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
</TABLE>

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

56
<PAGE>
J.P. MORGAN SERIES TRUST II
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
J.P. MORGAN J.P. MORGAN J.P. MORGAN
TREASURY J.P. MORGAN J.P. MORGAN SMALL INTERNATIONAL
MONEY MARKET BOND EQUITY COMPANY OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income $ -- $ -- $ 183,750 $ 65,738 $ 142,482
Interest Income 85,779 1,356,261 33,461 16,032 13,937
Less: Foreign Taxes Withheld -- (1,345) (499) -- (17,623)
------------ ----------- ----------- ----------- -------------
Total Investment Income 85,779 1,354,916 216,712 81,770 138,796
EXPENSES
Custodian Fees and Expenses 3,955 49,152 44,384 70,312 124,742
Advisory Fee 3,569 66,165 50,702 34,337 50,778
Professional Fees and Expenses 21,300 29,686 27,360 33,648 33,210
Trustees' Fees and Expenses 3,222 27,730 19,722 10,715 12,746
Transfer Agent Expense 16,001 16,103 16,210 16,113 16,618
Printing Expenses 22,357 26,263 19,196 24,656 25,390
Insurance Expense 1,289 4,888 7,336 4,564 9,421
Amortization of Organization Expense 1,975 1,975 1,975 1,975 1,975
Registration Fees -- 2,465 -- -- 540
Administration Fee 23 281 148 75 110
------------ ----------- ----------- ----------- -------------
Total Expenses 73,691 224,708 187,033 196,395 275,530
Less: Reimbursement of Expenses (62,985) (59,295) (72,953) (130,582) (173,976)
------------ ----------- ----------- ----------- -------------
NET EXPENSES 10,706 165,413 114,080 65,813 101,554
------------ ----------- ----------- ----------- -------------
NET INVESTMENT INCOME 75,073 1,189,503 102,632 15,957 37,242
NET REALIZED GAIN (LOSS) ON
Investment Transactions (16) 286,731 1,574,177 (85,540) (163,952)
Futures Contracts -- 162,785 163,920 -- --
Foreign Currency Contracts and Transactions -- (62,627) -- -- 41,061
------------ ----------- ----------- ----------- -------------
Net Realized Gain (Loss) (16) 386,889 1,738,097 (85,540) (122,891)
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments 8 72,422 923,471 (288,812) 365,253
Futures Contracts -- 9,135 63,570 -- --
Foreign Currency Contracts and Translations -- 11,271 -- -- (68,211)
------------ ----------- ----------- ----------- -------------
Net Change in Unrealized Appreciation
(Depreciation) $ 8 $ 92,828 $ 987,041 $ (288,812) $ 297,042
------------ ----------- ----------- ----------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 75,065 $ 1,669,220 $ 2,827,770 $ (358,395) $ 211,393
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
</TABLE>

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

57
<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, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 75,073 $ 296,248 $ 1,189,503 $ 405,628
Net Realized Gain (Loss) on Investments,
Futures and Foreign Currency Contracts
and Transactions (16) 98 386,889 89,282
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures
and Foreign Currency Contracts and
Translations 8 (225) 92,828 156,748
----------------- ----------------- ----------------- -----------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 75,065 296,121 1,669,220 651,658
----------------- ----------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (290,681) (68,567) (978,066) (371,448)
Net Realized Gain -- (227) (313,174) (76,188)
In Excess of Net Realized Gain -- -- -- --
----------------- ----------------- ----------------- -----------------
Total Distributions to Shareholders (290,681) (68,794) (1,291,240) (447,636)
----------------- ----------------- ----------------- -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
Proceeds from Shares of Beneficial
Interest Sold 414,157 235,434,828 24,436,288 13,586,133
Reinvestment of Dividends and
Distributions 290,677 129,447 1,291,238 570,510
Cost of Shares of Beneficial Interest
Redeemed (14,738) (235,560,885) (9,463,175) (1,243,619)
----------------- ----------------- ----------------- -----------------
Net Increase from Transactions in
Shares of Beneficial Interest 690,096 3,390 16,264,351 12,913,024
----------------- ----------------- ----------------- -----------------
Total Increase in Net Assets 474,480 230,717 16,642,331 13,117,046
NET ASSETS
Beginning of Fiscal Year 1,617,235 1,386,518 15,899,125 2,782,079
----------------- ----------------- ----------------- -----------------
End of Fiscal Year $ 2,091,715 $ 1,617,235 $ 32,541,456 $ 15,899,125
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Undistributed Net Investment Income $ 11,946 $ 227,554 $ 229,113 $ 35,503
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>

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

58
<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, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 102,632 $ 57,487 $ 15,957 $ 13,566
Net Realized Gain (Loss) on Investments,
Futures and Foreign Currency Contracts
and Transactions 1,738,097 1,503,440 (85,540) 552,703
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures
and Foreign Currency Contracts and
Translations 987,041 217,774 (288,812) 468,721
----------------- ----------------- ----------------- -----------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 2,827,770 1,778,701 (358,395) 1,034,990
----------------- ----------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (89,495) (56,988) (9,395) (12,562)
Net Realized Gain (1,645,803) (1,467,377) (74,714) (697,437)
In Excess of Net Realized Gain -- -- (167,917) --
----------------- ----------------- ----------------- -----------------
Total Distributions to Shareholders (1,735,298) (1,524,365) (252,026) (709,999)
----------------- ----------------- ----------------- -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
Proceeds from Shares of Beneficial
Interest Sold 8,311,939 1,347,586 3,344,904 681,496
Reinvestment of Dividends and
Distributions 1,735,296 2,071,106 252,063 1,128,681
Cost of Shares of Beneficial Interest
Redeemed (1,521,131) (119,999) (1,351,537) (806,325)
----------------- ----------------- ----------------- -----------------
Net Increase from Transactions in
Shares of Beneficial Interest 8,526,104 3,298,693 2,245,430 1,003,852
----------------- ----------------- ----------------- -----------------
Total Increase in Net Assets 9,618,576 3,553,029 1,635,009 1,328,843
NET ASSETS
Beginning of Fiscal Year 8,892,312 5,339,283 5,195,845 3,867,002
----------------- ----------------- ----------------- -----------------
End of Fiscal Year $ 18,510,888 $ 8,892,312 $ 6,830,854 $ 5,195,845
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Undistributed Net Investment Income $ 13,606 $ 499 $ 4,416 $ 1,960
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------

<CAPTION>
J.P. MORGAN
INTERNATIONAL OPPORTUNITIES
PORTFOLIO
-------------------------------------
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 37,242 $ 59,735
Net Realized Gain (Loss) on Investments,
Futures and Foreign Currency Contracts
and Transactions (122,891) 628,587
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures
and Foreign Currency Contracts and
Translations 297,042 (347,165)
----------------- -----------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 211,393 341,157
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (115,445) (230,309)
Net Realized Gain -- (727,719)
In Excess of Net Realized Gain (318,085) --
----------------- -----------------
Total Distributions to Shareholders (433,530) (958,028)
----------------- -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
Proceeds from Shares of Beneficial
Interest Sold 4,229,642 1,080,068
Reinvestment of Dividends and
Distributions 433,529 1,255,869
Cost of Shares of Beneficial Interest
Redeemed (1,433,325) (1,189,091)
----------------- -----------------
Net Increase from Transactions in
Shares of Beneficial Interest 3,229,846 1,146,846
----------------- -----------------
Total Increase in Net Assets 3,007,709 529,975
NET ASSETS
Beginning of Fiscal Year 6,779,901 6,249,926
----------------- -----------------
End of Fiscal Year $ 9,787,610 $ 6,779,901
----------------- -----------------
----------------- -----------------
Undistributed Net Investment Income $ -- $ 12,994
----------------- -----------------
----------------- -----------------
</TABLE>

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

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

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.41(d) 0.51(d) 0.44 0.45
Net Realized and Unrealized Gain (Loss)
on Investments 0.00(a)(d) (0.04)(d) 0.03 0.06
------- ------- ------- -------------
Total from Investment Operations 0.41 0.47 0.47 0.51
------- ------- ------- -------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1.77) (0.00)(a) (0.44) (0.45)
Net Realized Gain -- (0.00)(a) -- --
------- ------- ------- -------------
Total Distributions to Shareholders (1.77) (0.00)(a) (0.44) (0.45)
------- ------- ------- -------------

NET ASSET VALUE, END OF PERIOD $ 9.20 $ 10.56 $ 10.09 $ 10.06
------- ------- ------- -------------
------- ------- ------- -------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 4.28% 4.69% 4.69% 5.09%(b)
Net Assets, End of Period (in thousands) $ 2,092 $ 1,617 $ 1,387 $ 1,273
Ratios to Average Net Assets
Net Expenses 0.60% 0.60% 0.60% 0.60%(c)
Net Investment Income 4.20% 7.23% 4.56% 4.95%(c)
Expenses without Reimbursement 4.13% 1.35% 2.02% 2.77%(c)
Portfolio Turnover N/A N/A N/A N/A
</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.

60
<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
JANUARY 3,
1995
(COMMENCEMENT
FOR THE FISCAL OF
YEAR ENDED OPERATIONS)
DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
1998 1997 1996 1995
------- ------- ------ -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.29 $ 10.65 $10.91 $ 10.00
------- ------- ------ -------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.45 0.68(d) 0.47 0.58
Net Realized and Unrealized Gain (Loss) on
Investments, Futures and Foreign Currency
Transactions 0.45 0.31(d) (0.25) 1.11
------- ------- ------ -------------
Total from Investment Operations 0.90 0.99 0.22 1.69
------- ------- ------ -------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.39) (0.27) (0.47) (0.58)
Net Realized Gain (0.13) (0.08) (0.01) (0.20)
------- ------- ------ -------------
Total Distributions to Shareholders (0.52) (0.35) (0.48) (0.78)
------- ------- ------ -------------

NET ASSET VALUE, END OF PERIOD $ 11.67 $ 11.29 $10.65 $ 10.91
------- ------- ------ -------------
------- ------- ------ -------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 8.01% 9.38% 2.09% 16.85%(b)
Net Assets, End of Period (in thousands) $32,541 $15,899 $2,782 $ 1,417
Ratios to Average Net Assets
Net Expenses 0.75% 0.75% 0.75% 0.75%(c)
Net Investment Income 5.39% 6.20% 5.91% 6.00%(c)
Expenses without Reimbursement 1.02% 1.91% 2.18% 2.90%(c)
Portfolio Turnover 179% 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.

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
EQUITY
PORTFOLIO
-------------------------------------------------
FOR THE FISCAL FOR THE PERIOD
YEAR ENDED JANUARY 3, 1995
DECEMBER 31, (COMMENCEMENT OF
--------------------------- OPERATIONS) THROUGH
1998 1997 1996 DECEMBER 31, 1995
------- ------- ------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.33 $ 13.68 $ 12.63 $ 10.00
------- ------- ------- -------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.11 0.20 0.12
Net Realized and Unrealized Gain on Investments
and Futures 3.15 3.51 2.44 3.26
------- ------- ------- -------------------
Total from Investment Operations 3.25 3.62 2.64 3.38
------- ------- ------- -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.09) (0.11) (0.20) (0.12)
Net Realized Gain (1.65) (2.86) (1.39) (0.63)
------- ------- ------- -------------------
Total Distributions to Shareholders (1.74) (2.97) (1.59) (0.75)
------- ------- ------- -------------------

NET ASSET VALUE, END OF PERIOD $ 15.84 $ 14.33 $ 13.68 $ 12.63
------- ------- ------- -------------------
------- ------- ------- -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 23.28% 27.50% 21.14% 33.91%(b)
Net Assets, End of Period (in thousands) $18,511 $ 8,892 $ 5,339 $ 4,144
Ratios to Average Net Assets
Net Expenses 0.90% 0.90% 0.90% 0.90%(c)
Net Investment Income 0.81% 0.75% 1.49% 1.48%(c)
Expenses without Reimbursement 1.48% 2.31% 2.13% 2.70%(c)
Portfolio Turnover 82% 119% 90% 66%
</TABLE>

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

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
SMALL COMPANY
PORTFOLIO
-------------------------------------------------
FOR THE FISCAL FOR THE PERIOD
YEAR ENDED JANUARY 3, 1995
DECEMBER 31, (COMMENCEMENT OF
--------------------------- OPERATIONS) THROUGH
1998 1997 1996 DECEMBER 31, 1995
------- ------- ------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.09 $ 12.53 $ 11.83 $ 10.00
------- ------- ------- -------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.04 0.06 0.11
Net Realized and Unrealized Gain (Loss) on
Investments (0.74) 2.53 2.43 3.18
------- ------- ------- -------------------
Total from Investment Operations (0.71) 2.57 2.49 3.29
------- ------- ------- -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.02) (0.04) (0.06) (0.11)
Net Realized Gain (0.15) (1.97) (1.73) (1.35)
In Excess of Net Realized Gain (0.35) -- -- --
------- ------- ------- -------------------
Total Distributions to Shareholders (0.52) (2.01) (1.79) (1.46)
------- ------- ------- -------------------

NET ASSET VALUE, END OF PERIOD $ 11.86 $ 13.09 $ 12.53 $ 11.83
------- ------- ------- -------------------
------- ------- ------- -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return (5.51)% 22.50% 21.74% 32.91%(b)
Net Assets, End of Period (in thousands) $ 6,831 $ 5,196 $ 3,867 $ 2,536
Ratios to Average Net Assets
Net Expenses 1.15% 1.15% 1.15% 1.15%(c)
Net Investment Income 0.28% 0.28% 0.54% 0.99%(c)
Expenses without Reimbursement 3.43% 3.81% 2.69% 3.22%(c)
Portfolio Turnover 67% 85% 144% 100%
</TABLE>

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

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
INTERNATIONAL OPPORTUNITIES
PORTFOLIO
-----------------------------------------------
FOR THE FISCAL FOR THE PERIOD
YEAR ENDED JANUARY 3, 1995
DECEMBER 31, (COMMENCEMENT OF
------------------------- OPERATIONS) THROUGH
1998 1997 1996 DECEMBER 31, 1995
------ ------ ------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.60 $11.73 $ 10.86 $ 10.00
------ ------ ------- -------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14 0.15 0.20 0.15
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions 0.40 0.44 1.23 1.08
------ ------ ------- -------------------
Total from Investment Operations 0.54 0.59 1.43 1.23
------ ------ ------- -------------------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.16) (0.41) (0.09) (0.09)
Net Realized Gain -- (1.31) (0.47) (0.18)
In Excess of Net Realized Gain (0.46) -- -- --
Return of Capital -- -- -- (0.10)
------ ------ ------- -------------------
Total Distributions to Shareholders (0.62) (1.72) (0.56) (0.37)
------ ------ ------- -------------------

NET ASSET VALUE, END OF PERIOD $10.52 $10.60 $ 11.73 $ 10.86
------ ------ ------- -------------------
------ ------ ------- -------------------

RATIOS AND SUPPLEMENTAL DATA
Total Return 4.73% 5.43% 13.12% 12.38%(b)
Net Assets, End of Period (in thousands) $9,788 $6,780 $ 6,250 $ 3,992
Ratios to Average Net Assets
Net Expenses 1.20% 1.20% 1.20% 1.20%(c)
Net Investment Income 0.44% 0.88% 1.25% 1.06%(c)
Expenses without Reimbursement 3.26% 4.25% 3.18% 3.16%(c)
Portfolio Turnover 127% 149% 71% 68%
</TABLE>

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

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

64
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

J.P. Morgan Bond Portfolio's and J.P. Morgan International Opportunities
Portfolio's investments in emerging markets and international markets may
involve certain considerations and risks not typically associated with
investments in the United States. Future economic and political developments in
emerging market and foreign countries could adversely affect the liquidity or
value, or both, of such securities in which the portfolio is invested. The
ability of issuers of the debt, asset-backed and mortgage 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 value of
asset-backed and mortgage securities can be significantly affected by changes in
interest rates or rapid principal payments including pre-payments.

The preparation of financial statements in accordance with 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 short-term
portfolio securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.

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

65
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
exchange on which they are traded closes and the time when the portfolio's
net assets are calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general
supervision of the portfolio's trustees.

b) The books and records of the portfolios are maintained in U.S. dollars.
The market value of investment securities, other assets and liabilities
and foreign currency contracts 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 rates prevailing
on the respective dates of such transactions. Translation gains and losses
resulting from changes in exchange rates during the reporting period and
gains and losses realized upon settlement of foreign currency transactions
are reported in the Statement of Operations. Although the net assets of
the 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 becomes known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of first in first out.

d) Distributions to shareholders of net investment income and net realized
capital gains, if any, are declared and paid semi-annually.

e) Each portfolio incurred organization expenses in the amount of $9,834.
These costs were deferred and are being amortized on a straight-line basis
over a five-year period from the commencement of operations.

f ) Expenses incurred by the trust with respect to any two or more portfolios
in the trust are allocated in proportion to the net assets of each
portfolio in the trust, except where allocations of direct expenses to
each portfolio can otherwise be made fairly. Expenses directly
attributable to a portfolio are charged to that portfolio.

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

66
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations. At December 31, 1998, the portfolios had open
forward foreign currency contracts as follows:

J.P. MORGAN BOND PORTFOLIO
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 12/31/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
French Franc 2,848,509, expiring 02/12/99........ $ 516,259 $ 510,558 $ (5,701)
German Mark 862,586, expiring 02/12/99........... 524,018 518,666 (5,352)

SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- -----------
<S> <C> <C> <C>
French Franc 2,848,509, expiring 02/12/99........ $ 523,796 $ 510,558 $ 13,238
German Mark 862,586, expiring 02/12/99........... 528,448 518,666 9,782
--------------

NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 11,967
--------------
--------------
</TABLE>

J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO

<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
SETTLEMENT VALUE AT APPRECIATION/
SALES CONTRACTS VALUE 12/31/98 (DEPRECIATION)
- ------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C>
Australian Dollar 209,435, expiring 02/19/99..... $ 133,766 $ 128,395 $ 5,371
German Mark 661,779, expiring 02/19/99........... 393,101 398,066 (4,965)
South African Rand 691,370, expiring 02/19/99.... 117,911 115,523 2,388
Swiss Franc 412,897, expiring 02/19/99........... 303,681 302,146 1,535
--------------

NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 4,329
--------------
--------------
</TABLE>

h) Futures -- A future contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
portfolio enters into the contract. Upon entering into such a contract,
the portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are
known as "variation margin" and are recorded by the portfolio as
unrealized gains or losses. When the contract is closed, the portfolio
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time when
it was closed. The portfolio invests in futures contracts for the purpose
of hedging its existing portfolio securities, or securities the portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market

67
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
interest rates or securities movements. The use of futures transactions
involves the risk of imperfect correlation in movements in the price of
futures contracts, interest rates and the underlying hedged assets, and
the possible inability of counterparties to meet the terms of their
contracts. At December 31, 1998, the portfolios had open futures contracts
as follows:

J.P. MORGAN BOND PORTFOLIO

<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS LONG APPRECIATION OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Five Year Note, expiring March 1999......... 35 $ 4,603 $ 3,962,428
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>

<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS SHORT APPRECIATION OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Ten Year Note, expiring March 1999.......... 21 $ 6,639 $ 2,508,920
U.S. Long Bond, expiring March 1999.............. 1 1,775 129,556
--------------- -------------- ----------------
Totals........................................... 22 $ 8,414 $ 2,638,476
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>

J.P. MORGAN EQUITY PORTFOLIO

<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS LONG APPRECIATION OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
S&P 500, expiring March 1999..................... 5 $ 63,570 $ 1,493,305
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>

i) Each portfolio intends to comply with the provisions of the Internal
Revenue Code of 1986, as amended, (the "code") applicable to regulated
investment companies and to distribute substantially all of its income,
including net realized capital gains, if any, within the prescribed time
periods. Accordingly, no provision for federal income or excise tax is
necessary. Each portfolio is also a segregated portfolio of assets for
insurance purposes and intends to comply with the diversification
requirements of Subchapter L of the code. The J.P. Morgan Bond Portfolio
and the J.P Morgan International Opportunities Portfolio may be subject to
taxes imposed by countries in which they invest. 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, 1998, for the J.P. Morgan
International Opportunities Portfolio was to decrease undistributed net
investment loss by $64,041 and increase accumulated net realized loss on
investments, futures and foreign currency contracts and transactions by
$64,041. The adjustments are primarily attributable to foreign currency
gains. There was no effect of applying this statement for the year ended
December 31, 1998, for the J.P. Morgan Treasury Money Market Portfolio.
The effect of applying this statement for the year ended December 31,
1998, for the J.P. Morgan Bond Portfolio was to decrease undistributed net
investment income by $17,827, and

68
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
increase accumulated net realized gain on investments, futures and foreign
currency contracts and transactions by $17,827. The adjustments are
primarily attributable to foreign currency losses. The effect of applying
this statement for the year ended December 31, 1998, for the J.P. Morgan
Small Company Portfolio, was to decrease undistributed net investment
income by $4,106, increase accumulated net realized gain on investments,
futures and foreign currency contracts and transactions by $788 and
increase paid-in capital by $3,318. The effect of applying this statement
for the year ended December 31, 1998 for the J.P. Morgan Equity Portfolio,
was to decrease undistributed net investment income by $30, increase
accumulated net realized gain on investments, futures and foreign currency
contracts and transactions by $1,147 and decrease paid-in capital by
$1,117. Net investment income, net realized gains and net assets on the
portfolios were not affected by these changes.

k) For federal income tax purposes, the J.P. Morgan Treasury Money Market
Portfolio and J.P. Morgan International Opportunities Portfolio had
capital loss carryforwards of $16 and $523,955, respectively, which will
expire in the year 2006. To the extent that these capital losses are used
to offset future capital gains, it is probable that the gains so offset
will not be distributed to shareholders.

l) For federal income tax purposes, the J.P. Morgan Small Company Portfolio
and J.P. Morgan International Opportunities Portfolio incurred
approximately $203,251 and $141,874, respectively, of capital losses in
the period from November 1, 1998 to December 31, 1998. These losses were
deferred for tax purposes until January 1, 1999.

2. TRANSACTIONS WITH AFFILIATES

a) The trust, on behalf of the portfolio, has an Investment Advisory
Agreement with J.P. Morgan Investment Management Inc. ("Morgan"), a wholly
owned subsidiary of J.P. Morgan & Co. Incorporated. Under the terms of the
agreement, Morgan is paid a fee for its services, computed daily and paid
monthly, at an annual rate of: 0.20% of the average daily net assets of
J.P. Morgan Treasury Money Market Portfolio; 0.30% of the average daily
net assets of J.P. Morgan Bond Portfolio; 0.40% of the average daily net
assets of J.P. Morgan Equity Portfolio; 0.60% of the average daily net
assets of J.P. Morgan Small Company Portfolio and 0.60% of the average
daily net assets of J.P. Morgan International Opportunities Portfolio. For
the fiscal year ended December 31, 1998, Morgan's fees for these services
amounted to $3,569, $66,165, $50,702, $34,337, and $50,778, respectively.

b) The trust, on behalf of each portfolio, has retained Funds Distributor,
Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator
and distributor for each portfolio. Under a Co-Administration Agreement
between FDI and the trust on behalf of each portfolio, FDI provides
administrative services necessary for the operations of each portfolio,
furnishes office space and facilities required for conducting the business
of each portfolio and pays the compensation of the portfolios' officers
affiliated with FDI. Each portfolio has agreed to pay FDI fees equal to
its allocable share of an annual complex-wide charge of $425,000 plus
FDI's out-of-pocket expenses. The amount allocable to each portfolio is
based on the ratio of the portfolio's net assets to the aggregate net
assets of the trust and certain other investment companies subject to
similar agreements with FDI. For the fiscal year ended December 31,

69
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1998, the fee for these services amounted to: $23 for J.P. Morgan Treasury
Money Market Portfolio, $281 for J.P. Morgan Bond Portfolio, $148 for J.P.
Morgan Equity Portfolio, $75 for J.P. Morgan Small Company Portfolio and
$110 for J.P. Morgan International Opportunities Portfolio.

c) The trust, on behalf of each portfolio, has an Administrative Services
Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of
New York ("Morgan Guaranty"), under which Morgan Guaranty is responsible
for certain aspects of the administration and operation of each portfolio.
Under the Service Agreement, each portfolio has agreed to pay Morgan
Guaranty a fee based on the percentages described below. If total expenses
of each portfolio, excluding the advisory fees, 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 each portfolio for the excess expense amount and receive no fee.
Should such expenses be less than the expense limits, Morgan Guaranty's
fee would be limited to the difference between such expenses and the fees
calculated under the Services Agreement. For the fiscal year ended
December 31, 1998, Morgan Guaranty has agreed to reimburse the portfolios
for expenses under this agreement as follows: $62,985, $59,295, $72,953,
$130,582 and $173,976, 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.

3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares. Transactions in shares of beneficial interest of
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, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Shares sold...................................... 44,162 22,331,609
Reinvestment of dividends and distributions...... 31,530 12,537
Shares redeemed.................................. (1,563) (22,328,305)
----------------- -----------------
Net Increase..................................... 74,129 15,841
----------------- -----------------
----------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN BOND PORTFOLIO DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Shares sold...................................... 2,080,565 1,205,082
Reinvestment of dividends and distributions...... 110,506 51,352
Shares redeemed.................................. (810,528) (108,943)
----------------- -----------------
Net Increase..................................... 1,380,543 1,147,491
----------------- -----------------
----------------- -----------------
</TABLE>

70
<PAGE>
J.P. MORGAN SERIES TRUST II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN EQUITY PORTFOLIO DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Shares sold...................................... 532,283 87,424
Reinvestment of dividends and distributions...... 114,071 150,317
Shares redeemed.................................. (98,193) (7,706)
----------------- -----------------
Net Increase..................................... 548,161 230,035
----------------- -----------------
----------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN SMALL COMPANY PORTFOLIO DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Shares sold...................................... 265,858 55,026
Reinvestment of dividends and distributions...... 20,952 92,418
Shares redeemed.................................. (107,855) (59,040)
----------------- -----------------
Net Increase..................................... 178,955 88,404
----------------- -----------------
----------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Shares sold...................................... 393,562 88,691
Reinvestment of dividends and distributions...... 38,938 116,906
Shares redeemed.................................. (141,984) (98,969)
----------------- -----------------
Net Increase..................................... 290,516 106,628
----------------- -----------------
----------------- -----------------
</TABLE>

From time to time, the 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 portfolios.

4. INVESTMENT TRANSACTIONS

Investment transactions (excluding short-term investments) for the fiscal year
ended December 31, 1998, were as follows:

<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------------- -----------
<S> <C> <C>
J.P. Morgan Bond Portfolio
U.S. Government Agency Obligations.............. $ 31,456,454 $22,387,001
Corporate, Collateralized Mortgage and Other
Obligations..................................... 20,718,632 12,383,311
J.P. Morgan Equity Portfolio..................... 15,191,458 9,730,970
J.P. Morgan Small Company Portfolio.............. 5,419,400 3,675,809
J.P. Morgan International Opportunities
Portfolio....................................... 12,499,238 10,041,975
</TABLE>

71
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
J.P. Morgan 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, 1998, the results of each of their operations for
the year then ended, and the changes in each of their net assets and the
financial highlights for each of the two years in the period 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 audits. We conducted our audits 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 audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above. The financial highlights for
the year ended December 31, 1996 and for the period January 3, 1995
(commencement of operations) through December 31, 1995 were audited by other
independent accountants whose report dated February 14, 1997 expressed an
unqualified opinion on those statements.

PricewaterhouseCoopers LLP
New York, New York
February 18, 1999

72
<PAGE>
J.P. MORGAN SERIES TRUST II
ADDITIONAL INFORMATION (UNAUDITED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

YEAR 2000 PROCESSING ISSUE

Many computer programs in use today use two digits rather than four to identify
the year and cannot distinguish the year 2000 from the year 1900. The Year 2000
issue affects virtually all companies and organizations. The portfolios'
Investment Adviser is working on necessary changes to its computer systems to
deal with the Year 2000 issue. The portfolios' Transfer Agent, Custodian and
other service providers have reported that they are working on dealing with the
Year 2000 issue as well. There can be no assurance that the problem will be
corrected in all respects or that it will not have a negative effect on the
portfolios' operations or results. In addition, companies in which the
portfolios invest could be adversely affected by the Year 2000 issue, which
could have a negative effect on the portfolios' investment returns.

73
<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, 1998

JPSTIIFR-9812