VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE, 497, 1995-06-30

VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
497, 1995-06-30

Previous: VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INS & ANNUITY CO, 497, 1995-06-30

Next: WASHINGTON REAL ESTATE INVESTMENT TRUST, S-3/A, 1995-06-30

Variable Annuity Fund I
of Southwestern Life
Lincoln Plaza
500 North Akard Street
Dallas, Texas 75201

TO CONTRACT OWNERS AND PARTICIPANTS/ANNUITANTS OF VARIABLE ANNUITY FUND I OF
SOUTHWESTERN LIFE:

Accompanying this letter is the notice of the Annual Meeting of Contract Owners
of Variable Annuity Fund I of Southwestern Life (the "Separate Account")
scheduled for July 28, 1995, and a Proxy Statement/Prospectus that contains
important information concerning the proposals that will be voted on at the
Annual Meeting.

At the Annual Meeting, Contract Owners will be presented with a proposed
transaction to reorganize the Separate Account as a unit investment trust. As a
unit investment trust, the Separate Account would no longer invest directly in a
diversified portfolio of securities; rather, it would exchange that portfolio
for an equivalent amount of shares of the Capital Growth Portfolio ("Growth
Portfolio") of Scudder Variable Life Investment Fund, an existing diversified
open-end management investment company.

The proposed transaction is discussed in detail in the accompanying Proxy
Statement/Prospectus. Highlights of the transaction are briefly discussed below.

* Larger Asset Base

As a result of the transaction, the Separate Account will invest in
shares of the Growth Portfolio rather than directly in a variety of stocks and
other securities (as it now does). The Growth Portfolio has a significantly
larger asset base than the Separate Account. The larger asset base provides more
opportunities for investment allowing greater diversification and flexibility in
the pursuit of investment objectives.

* Stable Investment Costs

The fees and expenses payable by the Separate Account, which you
indirectly bear, are not expected to increase as a result of the transaction.

* Tax Consequences

We are advised by tax counsel that there will be no adverse tax
consequences to you as a result of the transaction.

* Recommended Vote

The Board of Managers of the Separate Account has unanimously approved
the transaction and recommends that you vote FOR it.

<PAGE>

We therefore urge you to carefully consider the information contained in the
Proxy Statement/Prospectus and to cast your vote on the proposals that will be
presented at the Annual Meeting by promptly signing, dating, and returning the
enclosed proxy card (or, where applicable, voting instruction form) in the
accompanying postage-paid reply envelope.

Sincerely,

Alfred W. Kennon, Jr., Secretary

YOU ARE URGED TO SIGN AND MAIL THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE
PAID ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER
YOU HAVE THE RIGHT TO CAST FEW VOTES OR MANY VOTES.

<PAGE>

VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

NOTICE OF ANNUAL MEETING OF CONTRACT OWNERS
OF VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
TO BE HELD July 28, 1995

To the Contract Owners of
Variable Annuity Fund I:

Notice is hereby given that the Annual Meeting of Contract Owners of Variable
Annuity Fund I of Southwestern Life ("Separate Account") will be held at 10:00
a.m., Central Standard Time, on July 28, 1995, in the offices of Southwestern
Life Insurance Company ("Southwestern") at Lincoln Plaza, 500 North Akard
Street, Dallas, Texas 75201, and at any adjournment or adjournments thereof (the
"Meeting"). The Meeting will be held for the following purposes:

1. To approve or disapprove a proposed conversion of the Separate
Account (presently a management investment company investing directly in a
diversified portfolio of securities, primarily stocks) into a unit investment
trust which would invest solely in the shares of a specific mutual fund.

2. Contingent upon contract owner approval of Proposal No. 1, above, to
approve or disapprove an Asset Transfer Agreement ("Agreement") and the
transactions contemplated thereby pursuant to which the Separate Account will
transfer substantially all of its assets to the Capital Growth Portfolio (the
"Growth Portfolio") of the Scudder Variable Life Investment Fund in exchange for
shares of the Growth Portfolio. A copy of the Agreement is attached as Exhibit A
to the attached Proxy Statement/Prospectus.

3. To elect the four members of the Board of Managers of the Separate
Account to serve until the completion of the conversion of the Separate Account
into a unit investment trust, as contemplated by Proposals No. 1 and 2, assuming
they are approved by contract owners, or, if the conversion is not consummated,
until the Separate Account's next annual meeting of Contract Owners and the
election and qualification of their respective successors.

4. To ratify the selection of Coopers & Lybrand L.L.P. as the Separate
Account's independent auditor for the fiscal year ending December 31, 1995.

5. To transact such other business as may be brought properly before
the Meeting or any adjournment or adjournments thereof.

The proposals to be presented at the Meeting are discussed in detail in the
attached Proxy Statement/Prospectus. Only eligible Contract Owners of record at
the close of business on June 6, 1995 are entitled to notice of and to vote at
the Meeting. The approximate date on which proxy materials are being first sent
to Contract Owners is June 29, 1995.

It is important that your vote be represented at the Annual Meeting. Therefore,
whether or not you expect to be present, you are requested to date and sign the
enclosed proxy and return it promptly in the enclosed, postage prepaid envelope.
You may revise or revoke your proxy at any time before the authority therein is
exercised.

By Order of the Board of Managers

Alfred W. Kennon, Jr., Secretary

<PAGE>

PROXY STATEMENT/PROSPECTUS

Transfer of the assets of in exchange for shares of

VARIABLE ANNUITY FUND I CAPITAL GROWTH PORTFOLIO
of SOUTHWESTERN LIFE

(a separate account of (a series of
SOUTHWESTERN LIFE INSURANCE COMPANY) SCUDDER VARIABLE LIFE INVESTMENT FUND)

500 North Akard Two International Place
Dallas, Texas 75201-3320 Boston Massachusetts 02110-4103
Telephone: 1-214-954-7220 Telephone: 1-617-295-1000

This Proxy Statement/Prospectus is furnished to Contract Owners of Variable
Annuity Fund I of Southwestern Life ("Separate Account") in connection with (1)
the proposed conversion ("Conversion") of the Separate Account from a "managed"
investment company into a (nonmanaged) unit investment trust (Proposal No. 1),
(2) if Proposal No. 1 is approved by Contract Owners, the proposed exchange
("Exchange") by the Separate Account of substantially all of its assets for
shares of the Capital Growth Portfolio ("Growth Portfolio") of Scudder Variable
Life Investment Fund ("Scudder Fund") (Proposal No. 2), (3) the election of four
members to serve on the Board of Managers of the Separate Account (Proposal No.
3) and (4) the ratification of the selection of Coopers & Lybrand L.L.P. as the
Fund's independent auditor for the fiscal year ending December 31, 1995
(Proposal No. 4).

If Proposals No. 1 and 2 are approved by Contract Owners, and the Conversion and
Exchange are consummated, Contract Owners, and participants in group Contracts,
will continue to participate in the Separate Account. However, instead of
investing in a portfolio of securities under the management of a Board of
Managers and with the advice of its own investment adviser, the Separate Account
will invest in shares of the Growth Portfolio. The Growth Portfolio, a series of
Scudder Fund, invests in a diversified portfolio of securities under the
management of the Trustees of the Scudder Fund. If the Conversion (Proposal No.
1) and the Exchange (Proposal No. 2) are not both approved by Contract Owners,
the Separate Account will continue in existence as a managed investment company.

The investment objectives of the Separate Account are similar to those of the
Growth Portfolio. The investment objective of the Separate Account is primarily
to select investments from the long term view of a prudent investor concerned
primarily with the growth of capital in relation to the growth of the economy
and the changing value of the dollar, with realization of current income a
secondary objective. The investment objective of the Growth Portfolio is to seek
to maximize long-term capital growth through a broad and flexible investment
program.

If the Conversion and Exchange are approved by Contract Owners at the Meeting,
and are consummated, the Separate Account, as a unit investment trust, will no
longer have a Board of Managers. Accordingly, the members elected to the Board
of Managers at the Meeting will not serve after the Conversion and Exchange are
consummated. If the Conversion and Exchange are not consummated, the Managers
elected at the Meeting will serve until the Separate Account's next annual
meeting of Contract Owners and the election and qualification of their
successors.

This Proxy Statement/Prospectus sets forth concisely the information about the
proposed Conversion and Exchange, the Agreement, the Separate Account, and the
Scudder Fund that Contract Owners, participants and annuitants ought to know
before voting. The Proxy Statement/Prospectus should be retained for future
reference. Copies of the current prospectuses of the Separate Account and
Scudder Fund, dated May 10, 1995 and May 1, 1995, respectively, are attached to
this Proxy Statement/Prospectus and are incorporated herein by reference. A
Statement of Additional Information dated June 19, 1995 relating to this Proxy
Statement/Prospectus is on file with the Securities and Exchange Commission (the
"Commission") and is incorporated herein by reference. Copies of the Statement
of Additional Information may be obtained without charge by calling toll free
1-800-792-4368, or 1-214-954-7220, or by writing to the Separate Account's
address above.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY SCUDDER FUND OR THE SEPARATE ACCOUNT.

The date of this Proxy Statement/Prospectus is July 19, 1995.

<PAGE>

GLOSSARY OF SPECIAL TERMS

Accumulation Unit: a measuring unit used to calculate the value of a Contract
before annuity payments begin.

Annuitant: a person on whose life annuity payments are based.

Annuity Unit: a measuring unit used to calculate the amount of annuity payments.

Beneficial Owner: a person who is an individual Participant under a group
Contract or an Annuitant under an individual Variable Annuity Contract that is
owned of record by a banking institution, brokerage firm, custodian, trustee,
nominee, or fiduciary.

Contract Owner: the person who has title to the Contract.

Participant: a person who makes Purchase Payments, or for whom Purchase Payments
are made.

Purchase Payment: amount paid to Southwestern pursuant to the Contract.

Variable Annuity: an annuity providing for payments that vary in amount with the
investment experience of the Separate Account.

SYNOPSIS

This Synopsis of certain information contained in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the more
complete information contained elsewhere in this Proxy Statement/Prospectus, and
in the Asset Transfer Agreement, attached hereto as Exhibit A, and the
prospectuses of the Separate Account and Scudder Fund, attached hereto as
Exhibits B and C, respectively.

Introduction

The Board of Managers of the Separate Account has approved (1) a proposed
conversion of the Separate Account from a "managed" investment company into a
(nonmanaged) unit investment trust, and (2) an Asset Transfer Agreement
("Agreement"), providing for the transfer of substantially all of the assets of
the Separate Account to the Growth Portfolio of Scudder Fund in exchange for
Growth Portfolio shares. The proposed Conversion and Exchange (collectively, the
"Transaction") will be presented to Contract Owners for their approval at the
Meeting of the Separate Account scheduled for July 28, 1995.

Forms of Organization

The Separate Account is a segregated asset account of Southwestern Life
Insurance Company ("Southwestern") established on December 19, 1967 and existing
pursuant to the provisions of the Texas Insurance Code.

The Separate Account funds certain individual and group variable annuity
contracts (the "Contracts") issued by Southwestern. Currently, the Separate
Account is a diversified, open-end management investment company registered as
such under the Investment Company Act of 1940, as amended ("1940 Act"), which
invests directly in a diversified portfolio of securities. The Board of Managers
of the Separate Account has overall responsibility for its management.

Scudder Fund is an existing diversified open-end management investment company
registered as such under the 1940 Act, and organized as a Massachusetts business
trust. It was organized on March 15, 1985, and is intended to be a funding
vehicle for variable annuity contracts and variable life insurance policies
offered by separate accounts of life insurance companies. It is a "series fund"
currently consisting of six separate investment series, including the

<PAGE>
Growth Portfolio. The Trustees of Scudder Fund have overall responsibility for
its management under Massachusetts law. If the Conversion and Exchange are
consummated, only the Growth Portfolio will be made available for investment
under the Contracts.

Proposed Conversion

The Board of Managers of the Separate Account has concluded that, due to the
Separate Account's current relatively small size and the fact that Southwestern
is not actively marketing the Contracts, it is unlikely that the Separate
Account's asset level will significantly increase in the foreseeable future. The
Board has further concluded that the Separate Account's relatively high expense
ratio and relatively low diversification and investment flexibility levels could
be improved if the Separate Account were converted from a managed investment
company to an unmanaged investment company that invests in an appropriate and
specific professionally managed mutual fund. By investing in the managed mutual
fund, the Separate Account will, indirectly, be adopting the investment
objectives of that mutual fund. After such a transaction, including the proposed
Conversion effected through the proposed Exchange, described below, the Separate
Account would be a "unit investment trust" as defined in the 1940 Act and would
no longer have a separate Board of Managers. As is more fully described on page
11 under "Approval of Conversion", below, such a conversion might be deemed to
be inconsistent with certain fundamental policies and restrictions of the
Separate Account, which cannot be changed without Contract Owner approval. For
the reasons set forth under that same caption, the Board of Managers, including
the Managers who are not "interested persons", as defined in the 1940 Act, of
the Separate Account (the "Non-Interested Managers"), recommends approval of the
Conversion.

Proposed Exchange

If the Exchange is consummated, substantially all of the assets of the Separate
Account will be transferred to the Growth Portfolio in exchange for shares of
the Growth Portfolio to be issued to the Separate Account. The respective
interests of Participants in the Separate Account immediately following the
Exchange will be equal to their interests in the Separate Account immediately
prior to the Exchange; but instead of investing directly in a diversified
portfolio of securities as it now does, the Separate Account will pursue its
investment goals by investing solely in the shares of the Growth Portfolio, an
investment series of a professionally managed mutual fund not affiliated with
Southwestern.

The aggregate net asset value of the shares the Separate Account will receive in
the Exchange will be equal to the market value of the Separate Account assets
transferred, in each case measured as of the business day next preceding the
Exchange (the "Valuation Date"). Following the transfer of assets of the
Separate Account, Scudder Fund shall record on its books the ownership of Growth
Portfolio shares by Southwestern which in turn shall allocate them to, and
record them as assets of, the Separate Account.

For the reasons described on page 12 under "Approval of Exchange -- Reasons for
and Purposes of Exchange and Conversion", the Board of Managers, including the
Non-Interested Managers, recommends approval of the Exchange. If the Exchange
does not take place, the Separate Account will continue as a managed investment
company, unless other action is subsequently taken by the Board of Managers and
the Contract Owners.

Investment Objectives and Policies of the Separate Account

The investment objective of the Separate Account is primarily to select
investments from the long-term view of a prudent investor concerned primarily
with the growth of capital in relation to the growth of the economy and the
changing value of the dollar. Realization of current income is a secondary
objective. Earned income and realized capital gains are reinvested. The Separate
Account keeps its assets fully invested, but may maintain reasonable amounts in
cash or in short-term debt securities to meet current expenses and normal
Contract payments and redemptions and to accommodate the orderly programming of
investments. The Separate Account normally invests its assets primarily in
common stocks, but from time to time may invest in other equity securities,
including preferred stocks and those debt securities convertible into or
carrying rights to purchase common stocks or to participate in earnings.
Normally, holdings of non-convertible debt securities comprise a relatively
small portion of the Separate

<PAGE>
Account. There may be times, however, when economic conditions or the general
level of common stock prices are such that investment in a portfolio made up
primarily in common stocks does not appear to be the best method of achieving
the objectives of the Separate Account. At such times, the Separate Account for
defensive purposes may invest all or any portion of its assets in Government and
corporate bonds or debentures whether or not convertible into stock or carrying
rights to purchase common stocks or to participate in earnings, or in other
similar types of investments as management may deem appropriate under the
circumstances. The Separate Account may invest in both listed and unlisted
securities, but none of the Separate Account's assets will be invested in common
stocks of corporations that have defaulted in the payment of any debt within the
past five years. The Separate Account will not invest in foreign securities
unless they are publicly traded in the United States.

If the Conversion and Exchange are consummated, all of the assets of the
Separate Account will be invested in shares of the Growth Portfolio. By virtue
of this investment, the Separate Account will, indirectly, follow the investment
objectives and policies of the Growth Portfolio.

Investment Objectives and Policies of Growth Portfolio

Growth Portfolio seeks to maximize long-term capital growth through a broad and
flexible investment program. The Growth Portfolio invests primarily in
marketable securities, principally common stocks and, consistent with its
objective of long-term capital growth, preferred stocks. The Growth Portfolio is
free to invest in a wide range of marketable securities offering the potential
for growth, in various sectors of the stock market, including companies that
generate and apply new technologies, new services and distribution techniques,
companies that own or develop natural resources, companies that may benefit from
changing consumer demands and lifestyles and foreign companies. In order to
reduce risk, as market or economic conditions may warrant, the Growth Portfolio
may also invest up to 25% of its assets in short-term debt instruments.

In addition, Growth Portfolio may invest up to 20% of its assets in intermediate
to longer-term debt securities when Growth Portfolio's investment adviser,
Scudder, Stevens & Clark, Inc. ("Scudder") anticipates that the total return on
debt securities is likely to equal or exceed the total return on common stocks
over a selected time. The Growth Portfolio may purchase investment-grade debt
securities, which are those rated Aaa, Aa, A or Baa by Moody's Investors
Service, Inc. or AAA, AA, A or BBB by Standard & Poor's, or if unrated, of
equivalent quality as determined by the adviser. The Growth Portfolio's
intermediate to longer-term debt securities may also include those which are
rated below investment grade, as long as no more than 5% of its net assets are
invested in such securities.

Growth Portfolio may, for hedging purposes, purchase forward foreign currency
exchange contracts and foreign currencies in the form of bank deposits. The
Portfolio may also purchase other foreign money market instruments including,
but not limited to, bankers' acceptances, certificates of deposit, commercial
paper, short-term government obligations and repurchase agreements. See also
"Approval of Exchange -- Comparison of Investment Objectives and Policies".

Principal Risk Factors

Risks associated with particular investments of the Growth Portfolio and the
Separate Account are discussed under "Principal Risk Factors" and "Approval of
Exchange-Comparison of Investment Objectives and Policies" later in this Proxy
Statement/Prospectus.

Investment Management Fees and Expenses

SLC Financial Services, Inc. (formerly, I.C.H. Financial Services, Inc.) ("SLC
Financial"), a Delaware corporation, is currently engaged by the Separate
Account to manage and recommend to the Board of Managers of the Separate Account
its course of investment. SLC Financial is located at 500 North Akard Street,
Dallas, Texas 75201.

As compensation to SLC Financial for its services, the Separate Account pays SLC
Financial a daily investment management fee of .00089% (.325% on an annual
basis) of the net asset value of the Separate Account. If the Exchange is
consummated, the investment advisory agreement between the Separate Account and
SLC Financial will be terminated, and the Separate Account will have no
independent investment adviser.

<PAGE>
Scudder Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the investment and business affairs of
Growth Portfolio subject to the policies established by its Trustees.
Scudder is located at Two International Place, Boston, Massachusetts 02110-4103.

For its advisory services to Growth Portfolio, Scudder receives compensation
monthly at the annual rate of .475% of the average daily net assets of the
Growth Portfolio.

The various life insurance companies which offer Growth Portfolio as a funding
vehicle have agreed to contribute to the capital of Growth Portfolio to the
extent that the annual operating expenses exceed .75% of the average daily net
assets of the Growth Portfolio for any year. Under those agreements, there are
no provisions for the various life insurance companies to seek reimbursement of
such contributions but the term and the amount of the expense limit may be
renegotiated.

The following tables show the current fees for the Separate Account and the
Growth Portfolio and, for the Separate Account, the pro forma fees, after giving
effect to the Proposed Conversion and Exchange as if it had occurred December
31, 1994. Fee information for the Separate Account is presented for each of the
forms of Contracts under which premiums continue to be paid.

<PAGE>

The Separate Account -- For group flexible payment Contracts issued on Form GPVA
and Form GRVA:

- --------------------------------------------------------------------------------
Contract Owner Transaction Expenses1, as a percentage of the
Purchase Payments Sales Load Imposed on Purchases.................3.25 %
Administrative Expenses..............................................3.00 %
Annual Expenses, as a percentage of average net assets
(for the year ended December 31, 1994, as adjusted):2
Management fees....................................................0.325%
Mortality Undertaking..............................................0.70 %
Expense Undertaking................................................0.30 %
Other expenses.....................................................0.663%
------
Total Annual Expenses............................................1.988%

<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------
If you surrender (or annuitize) your Contract
at the end of the applicable period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $82 $123 $168 $303
If you do not surrender your Contract:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $82 $123 $168 $303
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

Pro Forma
---------
Contract Owner Transaction Expenses1, as a percentage of the
Purchase Payments Sales Load Imposed on Purchases..................3.25 %
Administrative Expenses..............................................3.00 %
Annual Expenses, as a percentage of average net assets
(for the year ended December 31, 1994, as adjusted):2
Management fees....................................................0.58 %3
Mortality Undertaking..............................................0.70 %
Expense Undertaking................................................0.30 %
Other expenses.....................................................0.20 %4
------
Total Annual Expenses............................................1.78 %

<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------------------
If you surrender (or annuitize) your Contract
at the end of the applicable period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $80 $116 $157 $278
If you do not surrender your Contract:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $80 $116 $157 $278
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

1 State Premium Taxes (ranging from .5% to 3.0%) are not included.

2 Actual expenses adjusted to reflect annualized investment advisory fees.
During 1994, no investment advisory fees were paid from February 11, 1994 to May
2, 1994, the date the Separate Account executed a new investment advisory
agreement with SLC Financial.

3 While the Separate Account will not directly pay management fees following the
transaction, the management fees for advisory services to the Growth Portfolio
will be reflected in the net asset value per share of the Growth Portfolio and,
therefore, will be borne indirectly by the Separate Account.

4 Audit expense of the Separate Account (limited to 20% of net asset value).

6
<PAGE>

The Separate Account -- For individual annual premium deferred annuity Contracts
on Form APDVA and individual flexible premium deferred annuity Contracts issued
on Form FPDVA:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<C> <C>
Contract Owner Transaction Expenses1, as a percentage of the
Purchase Payments Sales Load Imposed on Purchases.................................................................4.50 %

Administrative Expenses.............................................................................................3.75 %
Annual Expenses, as a percentage of average net assets (for the year ended December 31, 1994, as
adjusted):2
Management fees...................................................................................................0.325%
Mortality Undertaking.............................................................................................0.70 %
Expense Undertaking...............................................................................................0.30 %
Other expenses....................................................................................................0.663%
------
Total Annual Expenses...........................................................................................1.988%

EXAMPLE 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------
If you surrender (or annuitize) your Contract at the end of the applicable
period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $101 $141 $186 $318
If you do not surrender your Contract:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $101 $141 $186 $318
- ------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------
Contract Owner Transaction Expenses1, as a percentage of the Purchase Payments Pro Forma
---------
Sales Load Imposed on Purchases...................................................................................4.50 %

Administrative Expenses.............................................................................................3.75 %
Annual Expenses, as a percentage of average net assets (for the year ended December 31, 1994, as
adjusted):2
Management fees...................................................................................................0.58 %3
Mortality Undertaking.............................................................................................0.70 %
Expense Undertaking...............................................................................................0.30 %
Other expenses....................................................................................................0.20 %4
------
Total Annual Expenses...........................................................................................1.78 %

EXAMPLE 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------
If you surrender (or annuitize) your Contract at the end of the applicable
period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $99 $135 $175 $293
If you do not surrender your Contract:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $99 $135 $175 $293
- -----------------------------------------------------------------------------------------------------------------------

1 State Premium Taxes (ranging from .5% to 3.0%) are not included.

2 Actual expenses adjusted to reflect annualized investment advisory fees. During 1994, no investment advisory fees were
paid from February 11, 1994 to May 2, 1994, the date the Separate Account executed a new investment advisory agreement
with SLC Financial.

3 While the Separate Account will not directly pay management fees following the transaction, the management fees for
advisory services to the Growth Portfolio will be reflected in the net asset value per share of the Growth Portfolio and,
therefore, will be borne indirectly by the Separate Account.

4 Audit expense of the Separate Account (limited to 20% of net asset value).

The EXAMPLE, a projection, should not be considered a representation of future expenses. Actual expenses may be greater
or lesser than those shown.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
The Growth Portfolio:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Shareholder Transaction Expenses1, as a percentage of offering price
Maximum Sales Load Imposed on Purchases.......................................................................................None
Maximum Sales Load Imposed on Reinvested Dividends............................................................................None
Deferred Sales Load...........................................................................................................None
Redemption Fees...............................................................................................................None
Exchange Fee..................................................................................................................None
Annual Expenses, as a percentage of average net assets (for the year ended
December 31, 1994):
Management fees.............................................................................................................0.475
12b-1 Fees...................................................................................................................None
Other expenses............................................................................................................. 0.105%
Total Fund Operating Expenses.............................................................................................0.58 %
</TABLE>

You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of
each time period: $6 $19 $32 $73
You would pay the following expenses on the same investment, as-
suming no redemption: $6 $19 $32 $73
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

THE PURPOSE OF THE ABOVE TABLES IS TO ASSIST CONTRACT OWNERS IN COMPARING THE
EXPENSES THAT THEY CURRENTLY BEAR DIRECTLY AND INDIRECTLY WITH THE DIRECT AND
INDIRECT EXPENSES THEY WILL BEAR UPON COMPLETION OF THE CONVERSION AND EXCHANGE.
SEE "EXPENSES," "MANAGEMENT FEES" AND "DEDUCTIONS FOR SALES AND OTHER EXPENSES"
ON PAGES 17, 18 AND 20, RESPECTIVELY.

Distribution of Shares

Philadelphia Life Asset Planning Company ("PLAPCO"), formerly but not currently
an affiliate of Southwestern, is the principal underwriter for the Contracts. As
of the date of this prospectus, Southwestern has discontinued the sale of
variable annuity contracts investing in the Separate Account, although it
continues to accept purchase payments on existing Contracts and to accept new
Participants under group Contracts.

Scudder Investor Services, Inc. a wholly-owned subsidiary of Scudder, is the
principal underwriter of the Growth Portfolio.

Expense Ratios

The Separate Account's total annual operating expenses (i.e., exclusive of
charges against the Separate Account for Southwestern's mortality and expense
undertakings under the Contracts) for the year ended December 31, 1994 were
1.91% of average daily net assets. During 1994, the Separate Account paid no
investment advisory fees to SLC Financial from February 11, 1994 to May 2, 1994,
the date Contract Owners approved a new investment advisory agreement between
the Separate Account and SLC Financial. Had the investment advisory fee been
paid the entire year, total annual operating expenses for 1994 would have been
approximately 1.988% of average daily assets.

Growth Portfolio's total annual operating expenses for the year ended December
31, 1994 were 0.58% of its average daily net assets.

<PAGE>
Purchase and Redemption Information

The purchase and redemption procedures with respect to the Separate Account are
described in the Separate Account prospectus. Purchase Payments (net of
deductions for sales and administrative expenses and applicable premium taxes)
are credited to a Contract in the form of accumulation units. The number of
units credited is determined by dividing the amount credited by the value of an
accumulation unit next determined after the Purchase Payment is received by
Southwestern at its home office. Accumulation unit values are, with certain
limited exceptions, determined daily, Monday through Friday. Prior to the
annuity date, Contract Owners may redeem their accounts or a portion thereof,
for a cash payment equal to the value of the accumulation units redeemed as next
determined after receipt of proper notice by Southwestern. In some states, such
redemption may result, in addition, in a whole or partial refund of any premium
taxes previously paid by the Contract Owner.

The value of the Separate Account is the sum of its assets minus its
liabilities. Portfolio securities generally are valued at market value. However,
securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Board of Managers. Short-term
obligations are valued at amortized cost.

The purchase, exchange and redemption procedures of Growth Portfolio are
described in the Scudder Fund prospectus. No fee is charged for purchases or
redemptions of Growth Portfolio shares. Orders to purchase and redeem shares of
Growth Portfolio received by Scudder Fund or its agents are effected on days
when the New York Stock Exchange ("NYSE") is open for trading. Scudder Fund
Accounting Corporation, determines net asset value per share as of the close of
regular trading on the NYSE, normally 4:00 p.m., eastern time, on each day on
which the NYSE is open for trading. Net asset value per share is calculated for
purchases and redemptions for the Growth Portfolio by dividing the current
market value of total Growth Portfolio assets, plus other assets, less all
liabilities, by the total number of shares outstanding.

Tax Consequences

Based on representations of the Separate Account and Scudder Fund, Wyatt,
Tarrant & Combs has rendered an opinion that the Exchange will not result in the
recognition of taxable gain or loss by the Separate Account's participants,
other than Southwestern, or by Growth Portfolio. See "Approval of Exchange --
Federal Tax Consequences of Transaction" later in this Proxy
Statement/Prospectus.

Other Matters

At the Meeting, Contract Owners will also be presented with proposals to elect
four members to the Board of Managers and to ratify the selection of Coopers &
Lybrand L.L.P. as the Separate Account's independent auditor for the fiscal year
ending December 31, 1995. Managers elected at the Meeting will serve until the
completion of the Conversion and Exchange, assuming they are approved by
Contract Owners. If the conversion of the Separate Account to a unit investment
trust is not consummated, Managers elected at the Meeting will serve until the
Separate Account's next annual meeting of Contract Owners and the election and
qualification of their respective successors.

PRINCIPAL RISK FACTORS

The risk factors associated with investing in the Separate Account (as proposed
to be converted) and, consequently, in the Growth Portfolio are similar to the
risk factors associated with investing in the Separate Account currently because
of limitations in investment objectives and policies. Those risk factors are
that the securities (primarily common stocks) selected for investment by
portfolio managers will not appreciate in value or will, in fact, lose value.
However, there are certain differences between the Separate Account and Growth
Portfolio, and the risks of investing in either vary to the degree that their
policies and restrictions vary. See "Approval of Exchange -- Comparison of
Investment Objectives and Policies" below.

<PAGE>
Options. There are, moreover, certain additional risks associated with Growth
Portfolio's use of options, including over-the-counter options and options on
securities indices. Risks associated with writing put options include the
possible inability to effect closing transactions at favorable prices.
Over-the-counter options purchased by the Growth Portfolio and portfolio
securities covering the Growth Portfolio's obligation pursuant to an
over-the-counter option may be deemed illiquid and may not be readily
marketable. The Growth Portfolio may also forego the benefit of appreciation on
securities sold pursuant to call options. Gains or losses on the Growth
Portfolio's transactions in securities index options depend on price movements
in the stock market generally (or for narrow market indices, in a particular
industry or segment of the market) rather than the price movements of individual
securities purchased by the Growth Portfolio.

Futures Contracts. There are also risks associated with Growth Portfolio's use
of futures contracts on securities indices and the use of put and call options
on futures contracts in securities of the type Growth Portfolio is authorized to
enter into. The portfolio may lose the expected benefit of futures transactions
if interest rates or stock prices move in an unanticipated manner. Such
unanticipated changes in interest rates and stock prices may result in poorer
overall performance in the Growth Portfolio than if the Growth Portfolio had not
entered into any futures transactions for Growth Portfolio.

Foreign Securities. Growth Portfolio may invest up to 25% of its assets in
equity securities of foreign issuers. Global investing involves special risks
and considerations not associated with investing in U.S. issuers. These
considerations, which may favorably or unfavorably affect Growth Portfolio's
performance, include changes in exchange rates and exchange rate controls (which
may include suspension of the ability to transfer currency from a given
country), costs incurred in conversions between currencies, nonnegotiable
brokerage commissions, less publicly available information, different accounting
standards, lower trading volume and greater market volatility, the difficulty of
enforcing obligations in other countries, less securities regulation, different
tax provisions (including withholding tax on dividends paid to Growth
Portfolio), war, expropriation, political and social instability and diplomatic
developments. Further, the settlement period of securities transactions in
foreign markets may be longer than in domestic markets and payment for
securities may be required before delivery. These considerations generally are
more of a concern in developing countries.

Forward Foreign Currency Contracts. Growth Portfolio may enter into forward
foreign currency exchange contracts to the extent of 15% of its total assets,
for hedging purposes. Unanticipated changes in currency prices may result in
poorer overall performance for the Growth Portfolio than if it had not engaged
in forward contracts.

* * * * * *

Unless both the proposed Conversion (Proposal No. 1) and the proposed Exchange
(Proposal No. 2) are approved by Contract Owners, the Separate Account will
continue in existence as a managed separate account.

<PAGE>
APPROVAL OF CONVERSION
(Proposal No . 1 )

Currently, the Separate Account is a separate investment account of
Southwestern, and is registered as a "management" investment company under the
1940 Act. Subject to the approval of the Contract Owners, Southwestern proposes
to convert the Separate Account into a "unit investment trust", as described
below.

The Board of Managers of the Separate Account has concluded that, due to (1) the
relatively small size of the Separate Account (approximately $4.99 million in
net assets as of December 31, 1994), and (2) the fact that Southwestern is not
actively marketing the Contracts, it is unlikely that the Separate Account's
asset level will significantly increase in the foreseeable future. For that
reason, the expense ratio of the Separate Account is at a higher level, and its
diversification and investment flexibility are at lower levels, than is
desirable for the most effective pursuit of its investment objectives. The Board
has further concluded that these factors could be improved if the Separate
Account 's assets were invested in an appropriate separate open-end management
investment company ("mutual fund") with investment objectives similar to those
of the Separate Account. The Separate Account would then invest exclusively in
shares of that mutual fund which, in turn, invests in a diversified portfolio of
securities (as the Separate Account now does). Under this structure, the
Separate Account would essentially be following the investment objectives of the
mutual fund in which it invests for the management of its assets. However, since
the asset base of the mutual fund could be much larger than that of the Separate
Account, it is expected that investment flexibility and diversification of the
underlying investments could be increased.

The Separate Account, after such a transaction, would only hold shares of the
underlying mutual fund and there would consequently be no legal or practical
necessity for it to have a Board of Managers or an investment adviser. The
Separate Account's advisory agreement with its investment adviser would
accordingly be terminated, and the Board of Managers would be dissolved. The
Separate Account would continue to issue redeemable securities (i.e., interests
in the Contracts) as it now does, but the value of such securities would be
based solely on the value of the shares of the selected mutual fund instead of
reflecting the aggregate net value of a managed portfolio of different
securities. The Separate Account, under those circumstances, would be classified
under the 1940 Act as a unit investment trust rather than a management company
and its rules and regulations would be amended accordingly.

Effective upon such a conversion, an endorsement to the Contracts will be issued
to conform their provisions governing the voting rights of Contract Owners and
the calculation of the net investment rate (that is, the rate of return used to
determine the value of an Accumulation Unit) to a unit investment trust
structure. Following the conversion, Contract Owners will no longer be entitled
to vote directly to elect a Board of Managers, although they will be entitled to
give voting instructions with respect to shares of the underlying mutual fund
held by the Separate Account, and the Separate Account will no longer pay
directly an investment advisory fee. See the discussion below under the headings
"Approval of Exchange" -- "Management Fees" (page 18) and "Voting of Growth
Portfolio Shares to be held by the Continuing Account" (pages 24-25).
Southwestern also intends to issue a third endorsement to the Contracts,
independent of the proposed conversion. That endorsement would add an express
provision in the Contracts that the assets held in the Separate Account are not
chargeable with liabilities arising out of any other business Southwestern may
conduct. This "insulation" of the Separate Account was automatic under the Texas
Insurance laws in effect at the time the Separate Account was established, but
the current Texas statutes now governing the establishment of separate accounts
require express language in the contracts to provide such insulation.

Before the Separate Account could proceed with such a conversion, however, it
may first have to change certain of its investment objectives, policies and
restrictions. As required by the 1940 Act, the Separate Account cannot change
those of its investment objectives, policies or restrictions that are deemed
"fundamental" unless authorized by the vote of a majority of its outstanding
Contract Owners. Southwestern and the Board of Managers propose to change such
policies and restrictions to the extent necessary for the Separate Account to
pursue substantially similar objectives and policies indirectly through
investment in another registered investment company. Such current objectives and
policies are primarily growth of capital over the long term in relation to the
growth of the economy and the changing value of the dollar. Realization of
current income is a secondary objective.

<PAGE>
The following existing specific fundamental policies and restrictions of the
Separate Account may be deemed to be inconsistent with the proposed conversion
since the Separate Account would invest solely in the shares of a single issuer.
Therefore, if Proposal No. 1 is approved, the following fundamental policies and
restrictions would be changed to the extent necessary to permit the conversion:

(1) The Separate Account, with respect to 75% of the value of its total
assets, cannot invest more than 5% of the value of its total assets in the
securities of any one issuer;

(2) The Separate Account, with respect to 75% of the value of its total
assets, cannot purchase the securities of any issuer if such purchase would
cause more than 10% of the voting securities of such issuer to be held by the
Separate Account; and

(3) The Separate Account cannot purchase any security if, as a result
of such purchase, 25% or more of the value of the Separate Account's total
assets would be invested in the securities of issuers having their principal
business activities in the same industry.

If Proposal No. 1 is not approved by Contract Owners, the Separate Account will
continue in existence as a management investment company. If Proposal No. 1 is
approved, Southwestern will, subject to Contract Owner approval of Proposal No.
2 as well, effect the conversion of the Separate Account into a unit investment
trust by transferring the Separate Account's assets to the Growth Portfolio in
exchange for shares of the Growth Portfolio having an aggregate net asset value
equal to the market value of the assets so transferred. If Proposal No. 1 is
approved but Proposal No. 2 is not approved, Southwestern will seek to identify
a different mutual fund that shares substantially similar investment objectives
and policies as the Separate Account now has and is otherwise considered by the
Board of Managers to be suitable for investment by the Separate Account. Unless
and until such other mutual fund is identified and a subsequent conversion is
approved by Contract Owners and consummated, the Separate Account will continue
to be operated as a management investment company.

The Board of the Separate Account unanimously recommends a vote FOR the proposed
Conversion.

APPROVAL OF EXCHANGE
(Proposal No. 2)

Description of Proposed Exchange

A copy of the Agreement, which Southwestern, the Separate Account and Scudder
Fund have entered into in order to effect the proposed Exchange in connection
with the restructuring of the Separate Account described above, is set forth in
Exhibit A hereto.

Pursuant to the terms of the Agreement, as of the effective time ("Effective
Time") on the date the Exchange is consummated, now scheduled for July 28, 1995,
or such other date as may be mutually agreed upon among all parties to the
Agreement (the "Closing Date"), Southwestern, on behalf of the Separate Account,
will sell, assign and transfer all of the Separate Account's then existing
portfolio assets (consisting of all cash, securities and other investments held
or in transit, receivables for investments sold, dividends, interest receivables
and any other assets), less an amount retained to satisfy current liabilities of
the Separate Account, to the Growth Portfolio in exchange for shares of the
Growth Portfolio. As of the Effective Time on the Closing Date, the Board of
Managers of the Separate Account will be dissolved.

The number of shares of Growth Portfolio to be issued in the Exchange to the
Separate Account will be determined by dividing the market value of the assets
of the Separate Account to be transferred, as of the close of trading on the
Valuation Date, by the per share net asset value of a share of Growth Portfolio
as of the close of trading on the Valuation Date. Scudder Fund will issue full
and fractional shares of the Growth Portfolio.

<PAGE>
The consummation of the Exchange is subject to a number of terms and conditions
set forth in the Agreement. These include (1) Contract Owner approval of the
Conversion and Exchange; (2) stipulation that the Growth Portfolio assumes no
liabilities of the Separate Account in connection with the Exchange; (3)
warranties by the Separate Account, Southwestern and Scudder Fund relating to,
among other things, the authority of such persons to enter into and perform the
Agreement, nonexistence of undisclosed liabilities, and the Separate Account's
good and marketable title to its assets to be transferred; (4) receipt of a
favorable tax opinion; (5) agreements that each of Scudder Fund and the Separate
Account shall bear its own expenses in connection with the Exchange (and that
Southwestern will assume all such expenses of the Separate Account); and (6)
indemnification (A) of the Separate Account, Southwestern and their respective
officers and directors by Scudder Fund, on behalf of the Growth Portfolio,
against expenses, liabilities and claims made against them resulting from a
breach of the Agreement by Scudder Fund or Growth Portfolio; and (B) of Scudder
Fund, its directors, officers and Growth Portfolio by the Separate Account and
Southwestern, against expenses, liabilities and claims made against them arising
out of breach of the Agreement by the Separate Account or Southwestern.

Southwestern will cause the shares of the Growth Portfolio it receives from
Scudder Fund to be duly and validly recorded and held on its records as the
assets of the Separate Account. A participant's interest in the Separate Account
immediately after the Exchange will be equal to his or her interest in the
Separate Account immediately before the Exchange. Southwestern will take all
action necessary to ensure that a participant's interest in the Separate Account
is duly and validly recorded on the participant's individual account records.

Even though the investment objectives of the Separate Account and the Growth
Portfolio are similar, the Agreement contemplates that the Separate Account
will, to the extent otherwise consistent with the duties of the Board of
Managers, sell, prior to the Exchange, those of its portfolio securities that
are not consistent with the investment policies of the Growth Portfolio. Under
the terms of the Agreement, Southwestern will bear the expenses, including
brokerage commissions, associated with any such sales.

As indicated under "Further Information About Scudder Fund," below, there are
certain legal and other differences between investing directly, as the Separate
Account currently does, and investing indirectly, through the Continuing
Separate Account, in the Growth Portfolio.

If the Conversion and Exchange are consummated and, if later, investment in the
Growth Portfolio is no longer possible or, in the judgment of Southwestern,
becomes inappropriate to the purpose of the Contracts, Southwestern may
substitute another mutual fund without the consent of the Contract Owners. Such
substitution may be made with respect to both existing investments and
investments of future Purchase Payments.

Reasons for and Purposes of Exchange and Conversion

The basic change resulting from the Exchange and Conversion (collectively, the
"Transaction") would be that the Separate Account thereafter (the "Continuing
Separate Account") will invest its assets indirectly through investment in the
Growth Portfolio instead of directly in a pool of common stock and other
securities as it does now.

The Board of Managers has determined that the Transaction should benefit
participants and would be in their best interests by enabling them to
participate in an investment portfolio (the Growth Portfolio) with investment
objectives comparable to those of the Separate Account but with a significantly
larger asset base than that of the Separate Account, thereby providing
diversification and portfolio flexibility. This enhancement will be at no
anticipated additional cost to participants under Contracts existing immediately
before the Effective Time of the Exchange. The Board reached these
determinations after consideration, among other things, of (1) the capabilities
and resources of Scudder in the area of investment management; (2) expense
ratios and other information pertaining to the Separate Account and Growth
Portfolio; (3) the terms and conditions of the Agreement; and (4) the agreement
by Southwestern, discussed below under "Expenses", to bear a portion of the
Continuing Separate Account's audit fees, to the extent they might otherwise
exceed certain levels. The Board of Managers also considered the performance of
the Growth Portfolio, in comparison to the historical performance of the
Separate Account, and the many factors

<PAGE>
which affected investment performance during 1994. As shown in the financial
information that follows, the Separate Account achieved higher investment
performance during 1994 than did the Growth Portfolio. The Growth Portfolio
sustained investment losses for 1994, in part as a result of its holdings in the
cable and retail industries. Still, the Board of Managers believes that the
opportunities offered through the investment of the Separate Account's assets in
the independently, professionally and actively managed Growth Portfolio is in
the long term best interests of the Contract Owners.

The proposed Transaction is not expected to: (1) have any direct or indirect
adverse tax consequences for participants (other than Southwestern); or (2)
result in any increase in the overall level of other fees and expenses which may
be charged to participants currently.

The proposed Transaction would not have any impact on the Separate Account's
purchase or redemption procedures nor will it adversely affect Contract Owners'
rights under the Contracts (other than with respect to voting rights, to the
extent summarized below). As a result of the Transaction, the current management
fee and certain other direct expenses of the Separate Account would be
eliminated. The Growth Portfolio, however, pays its own investment advisory fee
and other expenses, which the Contract Owners of the Separate Account would bear
indirectly. It is expected (although not assured) that the Separate Account's
overall expenses will be lowered as a result of the Transaction.

Following the Transaction, if consummated, participants and Contract Owners will
continue to have voting privileges with respect to the Scudder Fund similar in
many respects to those the participants currently have with respect to the
Separate Account. There are some differences, however, the most significant of
which are: (1) Scudder Fund, because it is organized as a Massachusetts business
trust, is not required to hold, and does not currently hold, annual or other
regular meetings for the purpose of electing its Trustees, and (2) the voting
power of the Separate Account Contract owners will be diluted as a result of its
being shared with other shareholders of Growth Portfolio (and, with respect to
shareholder approval of some matters, with all shareholders of Scudder Fund).
These matters are more fully described under "Approval of Exchange - Further
Information About Scudder Fund."

The Continuing Separate Account

Immediately after the Transaction, if consummated, the Separate Account's net
asset value will be the same as it was immediately prior to the Transaction.
Accumulation unit values and annuity unit values will continue to be computed as
they were prior to the Transaction, except that the daily charge against the
assets of the Separate Account for its expenses will change (see "Expenses",
below).

The Contracts will continue to be administered as they have been in the past;
the Transaction will have no impact on purchase or surrender procedures, annuity
options, or benefits payable under the Contracts.

For further information about the Separate Account, Southwestern and the
Contracts, please refer to the attached current prospectus for the Separate
Account dated May 10, 1995.

Supplementary Information - Selected Accumulation Unit Data and Ratios
Separate Account)

Supplemental financial information for the Separate Account for the ten year
period ended December 31, 1994 is contained in the accompanying current
prospectus for the Separate Account dated May 10, 1995. Supplemental financial
information for the year ended December 31, 1994 is also set forth below.

<PAGE>
1994

Qualified Unit:
Investment income .................................................. $ .187

Expenses ........................................................... .106
------

Net investment income .............................................. .081

Net realized and unrealized gain (loss) on securities .............. .231
------

Net increase (decrease) in unit value .............................. .312

Unit value:
Beginning of year .................................................. 5.398
------

End of year ........................................................ $ 5.710
======

Number of units outstanding at end of the period (in thousands) ..... 685
======

Nonqualified Unit:
Investment income .................................................. $ .170

Expenses ........................................................... .096
------

Net investment income .............................................. .074

Net realized and unrealized gain (loss) on securities .............. .210
------

Net increase in unit value ......................................... .284

Unit value:
Beginning of year .................................................. 4.913
------

End of Year ........................................................ $ 5.197
======

Number of units outstanding at end of the period (in thousands) 112
===

Ratios:
Expenses to average net assets (%) .................................. 1.91

Net investment income to average net assets (%) ..................... 1.47

Portfolio turnover (%) .............................................. 6

15
<PAGE>
Financial Highlights (Scudder Fund)

Condensed financial information about Growth Portfolio for the periods since its
inception through December 31, 1994, is contained in the accompanying prospectus
for Scudder Fund, dated May 1, 1995. "Financial highlights" information for the
Growth Portfolio for the year ended December 31, 1994 appears immediately below.

1994

Net asset value, beginning of period .............................. $ 14.95
------

Income for investment operations:
Net investment income ............................................ .06

Net realized and unrealized gain (loss) on investment
transactions .................................................... (1.42)
------

Total from investment operations .................................. (1.36)
------

Less distributions from:
Net investment income ............................................ (.05)

Net realized gains on investment transactions .................... (1.31)
------

Total distributions ............................................... (1.36)
------

Net asset value, end of period .................................... $ 12.23
======

Total Return (%) .................................................. (9.67)

Ratios and Supplemental data

Net assets, end of period ($ millions) ............................ 257

Ratio of operating expenses, net to average net assets (%) ........ .58

Ratio of net investment income to average net assets (%) .......... .47

Portfolio turnover rate (%) ....................................... 66.44

Accumulation and Annuity Unit Values

Currently, the values of Accumulation Units and annuity units under the
Contracts vary with the investment performance of the Separate Account's
portfolio of securities. Such values are also affected by charges and fees
imposed under the Contracts. If the Transaction is consummated, accumulation and
annuity unit values will, instead, vary with the investment performance of the
Growth Portfolio and will also be affected by Contract charges that will differ,
in some respects, from those currently imposed (see "Expenses", immediately
below, and the historical and pro forma fee tables at pages 6, 7 and 8).

<PAGE>
Expenses

Southwestern will bear all of the direct expenses of the Transaction that might
otherwise be attributable to, and payable by, the Separate Account. Thus, the
Separate Account, its Contract Owners and participants will not bear any of the
direct costs of the Transaction. As a result of the Transaction, certain of the
types of expenses presently borne by the Separate Account as a result of its
day-to-day operations would not thereafter be borne directly by the Separate
Account. However, they would be borne indirectly by the Separate Account as a
result of its investment in the Growth Portfolio.

For the three fiscal years ended December 31, 1994, 1993 and 1992, the ratios of
the total expenses of the Separate Account (not including Contract Owner
transaction expenses), expressed as a percentage of the average net assets of
the Separate Account, were 1.91%, 1.98% and 1.95%, respectively. In each case,
the portion of those amounts attributable to Southwestern's fee for its
mortality and expense undertaking was 1.0% of average net assets. The fees for
the mortality and expense undertaking would continue at the same rate of 1.0%
after the Transaction. In each of those years, the Separate Account's management
fees (described in greater detail below) included in the above totals
constituted 0.325% of average net assets. However, during 1994, the investment
advisory fees were suspended from February 11, 1994 to May 2, 1994, the date
Contract Owners approved a new investment advisory agreement between the
Separate Account and SLC Financial. Had the investment advisory fee been paid
the entire year, total annual operating expenses for 1994 would have been
approximately 1.988% of average daily assets. If the Transaction is consummated,
the management fees currently paid by the Separate Account will thereafter not
be assessed. The balance of the Separate Account's expenses in each of the three
years stated above -- 0.663% in 1994, 0.655% in 1993 and 0.625% in 1992 -- was
attributable to (1) compensation and expenses of the Non-Interested Managers,
and (2) auditing fees and expenses. After the Transaction, if consummated, the
first of these latter two categories of expense, like the Separate Account's
management fee, will no longer exist and therefore such expenses will no longer
be deducted from the Separate Account. It should be recognized, however, that
the Growth Portfolio has its own expenses (including an investment advisory fee
and payment of compensation to those of Scudder Fund's trustees that are not
"interested persons" of Scudder Fund), so that Contract Owners in the Continuing
Separate Account would be paying similar types of expenses indirectly through
the Separate Account's investment in the Growth Portfolio. Moreover, certain
expenses, such as brokerage commissions on portfolio securities transactions,
have an impact on the net investment return even though they do not explicitly
appear as charges against the Separate Account assets. To the extent that the
Growth Portfolio also bears such expenses, they will have a similar effect on
net investment income.

Fees of audit for the Separate Account (equal to $25,000, $25,000 and $25,067,
respectively, for the years 1994, 1993 and 1992) have been charged against the
Separate Account's assets. Such fees, expressed as a percentage of the Separate
Account's average net assets, were approximately 0.51%, 0.48% and 0.46%,
respectively, for those same years. After the Transaction, if consummated, audit
fees and expenses will continue to be charged to the Continuing Separate
Account, at cost, pursuant to Section 26(a)(1) of the 1940 Act. Since the level
of the Separte Account's aggregate assets is likely to decrease over time, the
impact of a largely fixed annual cost, such as the audit fees, would likely
result in an increasing expense component for the Separate Account (expressed as
an annual percentage of its assets). The Board of Managers believes that the
audit fees might be renegotiated downward (since the Continuing Separate Account
will own a single investment asset). Nevertheless, that result is not assured,
nor is the effect any such immediate reduction might have on future expense
ratios. Southwestern, however, has agreed to assume any such fees and expenses
for the Continuing Separate Account to the extent that they would otherwise
exceed 0.20% of the Continuing Separate Account's average net assets in any
year.

The operating expenses (net) for the Growth Portfolio in the years ended
December 31, 1994, 1993 and 1992, expressed as percentages of average net assets
of the Growth Portfolio, were 0.58%, 0.60% and 0.63% respectively.

Insurance companies whose separate accounts invest in Scudder Fund for the
purpose of funding variable annuity contracts and/or variable life insurance
policies ("Participating Insurance Companies") initially agreed, for limited
periods of time, to make capital contributions to Scudder Fund if the operating
expenses of the Portfolios for a year exceed specified limits. In the case of
the Growth Portfolio, the applicable limit is 0.75% of the Growth Portfolio's

<PAGE>
average daily net assets. The obligation of a Participating Insurance Company
having an investment in a Portfolio to make such capital contribution is equal
to a portion of the amount by which the Portfolio's operating expenses exceed
the specified limit, based upon the company's investment in the Portfolio
compared to the Portfolio's net assets according to a specified formula. (See
the attached current prospectus for Scudder Fund for more detailed information).
Southwestern has, contingent upon the Transaction having been effected, agreed
to enter into a similar agreement with Scudder Fund. However, as is the case
with other Participating Insurance Companies, Southwestern's contingent
agreement to make capital contributions is for a period of five years from the
effective date of the agreement, and from year to year thereafter. Thus, there
is no assurance that the Growth Portfolio's operating expenses will be limited
to 0.75% of its average daily net assets by reason of such agreements. For the
years 1994, 1993 and 1992, the operating expenses of the Growth Portfolio were
lower than 0.75% of its average daily net assets without any contributions
having been made by Participating Insurance Companies. However, there can be no
assurance that such situation will continue in the future.

Management Fees

SLC Financial has served as the investment adviser for the Separate Account
since 1987. It currently serves as the Separate Account's investment adviser
pursuant to an Investment Advisory Agreement approved by Contract Owners at the
annual meeting on May 2, 1994. This Investment Advisory Agreement became
effective May 2, 1994.

SLC Financial was incorporated in Delaware on December 17, 1986 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
SLC Financial is located at 500 North Akard Street, Dallas, Texas 75201, and is
a direct wholly-owned subsidiary of Southwestern Life Corporation ("SLC"), an
insurance holding company that is also the parent of Southwestern.

SLC Financial recommends to the Board of Managers of the Separate Account a
course of investment for the Separate Account's assets and portfolio subject to,
and in accordance with, the investment objectives and policies of the Separate
Account and any directions that the Board of Managers may issue from time to
time. In pursuance of the foregoing, SLC Financial makes recommendations for the
purchase and sale of specific portfolio securities. SLC Financial's
recommendations also include the manner in which the voting rights pertaining to
portfolio securities shall be exercised. SLC Financial renders regular reports
to the Separate Account at the periodic meetings of the Board of Managers and at
such other times as may be requested by the Board of Managers regarding the
recommendations that SLC Financial has made with respect to the investment of
the Separate Account's assets and the purchase and sale of portfolio securities.

Pursuant to the Investment Advisory Agreement, SLC Financial is paid a daily
management fee of .00089% (.325% on an annual basis) of the net asset value of
the Separate Account. Reflecting the fact that no investment management fees
were paid from February 11, 1994 until May 2, 1994, the date Contract Owners
approved a new Investment Advisory Agreement, the total management fees paid to
SLC Financial by the Separate Account during 1994 were $12,372. For its 1993
fiscal year, the Separate Account paid SLC Financial management fees of $16,000.
For its 1992 fiscal year, the Separate Account paid SLC Financial management
fees of $16,535.

As of the Effective Time, the Investment Advisory Agreement between the Separate
Account and SLC Financial will be terminated, and no management fees payable to
SLC Financial by the Separate Account will be accrued thereafter. However, the
Growth Portfolio currently pays advisory fees to Scudder at an annual rate of
0.475% of the average daily net assets of the Growth Portfolio. That rate is
higher than the rate the Separate Account currently pays SLC Financial for its
management fee. The advisory fees that the Growth Portfolio pays to Scudder are
reflected in the net asset value per share of the Growth Portfolio and,
therefore, will be borne indirectly by the Contract Owners in the Continuing
Separate Account.

<PAGE>
Portfolio Management

Scudder Fund is managed by a team of Scudder investment professionals who each
play an important role in the Portfolio's management process. Team members work
together to develop investment strategies and select securities for the
Portfolios. They are supported by Scudder's large office staff of economists,
research analysts, traders, and other investment specialists who work in
Scudder's offices across the United States and abroad. Scudder believes its team
approach benefits Scudder Fund investors by bringing together many disciplines
and leveraging Scudder's extensive resources.

Lead Portfolio Manager William F. Gadsden assumed responsibility for setting
Growth Portfolio's stock investing strategy and overseeing the Portfolio's
day-to-day operations in 1995. Mr. Gadsden, who joined Scudder in 1983 and the
team in 1989, has 18 years of investment experience. Bruce F. Beaty, Portfolio
Manager, focuses on securities selection and assists with the creation and
implementation of investment strategy for the Portfolio. Mr. Beaty joined
Scudder in 1991 and has 15 years of investment experience.

Brokerage

Purchases and sales of securities for the Separate Account's portfolio and the
selection of broker-dealers to handle these transactions are effected by SLC
Financial. As a general matter, it is SLC Financial's policy to seek the most
favorable net security price consistent with efficient execution of orders.
Subject to that consideration, SLC Financial in selecting brokers to execute the
Separate Account's transactions gives consideration to the furnishing of
statistical data, research information and related services by brokers. SLC
Financial may pay a broker a commission in excess of that which another broker
might have charged for the same transaction because of the value of research
services provided by the broker. The Separate Account's portfolio turnover rates
for the years ending December 31, 1994, 1993 and 1992 were approximately 6%, 9%
and 5%, respectively.

The Separate Account is not affiliated with any broker-dealer. PLAPCO, the
principal underwriter of the Contracts and a former affiliate of Southwestern,
receives no brokerage commissions from the Separate Account.

If the Transaction is consummated, the Separate Account will no longer directly
bear portfolio transaction brokerage expenses. The Growth Portfolio, however,
bears brokerage expenses which affect its per share net asset value and
consequently affect the net investment performance of the Growth Portfolio. The
portfolio turnover rates of the Growth Portfolio for the years ended December
31, 1994, 1993 and 1992 were approximately 66%, 95% and 56%, respectively. Those
ratios are higher than the portfolio turnover rates experienced by the Separate
Account for those same years. Higher portfolio turnover rates generally indicate
higher aggregate commissions paid to brokers executing portfolio transactions.

Scudder is not authorized, when placing portfolio transactions for Scudder Fund,
to pay a brokerage commission (to the extent applicable) in excess of that which
another broker might have charged for effecting the same transaction solely on
account of the receipt of research, market or statistical information. To the
maximum extent feasible, Scudder places orders for portfolio transactions
through its affiliate Scudder Investor Services, Inc. ("Investor Services")
which in turn places orders on behalf of Scudder Fund with the issuer,
underwriters or other brokers and dealers. Investor Services will receive no
commissions, fees or other remuneration for this service. Allocation of
brokerage is supervised by Growth Portfolio's investment adviser. The primary
objective for Growth Portfolio's investment adviser in placing orders for the
purchase and sale of securities for Growth Portfolio is to obtain the most
favorable net results taking into account such facts as price, commission (which
is negotiable in the case of U.S. stock exchange transactions but generally
fixed in the case of foreign exchange transactions), if any, size of order,
difficulty of execution and skill required of the executing broker/dealer.

<PAGE>
Deductions for Sales and Other Expenses

Deductions are made from each Purchase Payment made under a Contract as received
to cover: (i) sales expenses; (ii) administrative expenses, including but not
limited to items such as salaries and travel expenses of home office officials
and employees, rent, postage, telephone, legal fees, office equipment,
stationery and other office expenses; and (iii) premium taxes, when applicable.
The deductions for administrative expenses are designed only to reimburse
Southwestern for its actual expenses, and Southwestern does not expect to
recover from these deductions any amounts above its accumulated expenses in
administering the Contracts. The deductions for these expenses vary from 4% to
8-1/4% of the Purchase Payment, depending on the particular Contract.

These deductions do not presently cover: (i) taxes (if any) arising from income
and capital gains of the Separate Account or otherwise from the existence of the
Separate Account; (ii) fees and expenses of audit of the Separate Account; and
(iii) compensation and expenses of the members of the Board of Managers and
employees of the Separate Account who are not "interested persons" (as that term
is defined in the 1940 Act). The cost of preparing and printing annual or other
amendments to the Separate Account's registration statement, including
prospectuses, and any taxes on income and capital gains (if any) of the Separate
Account which are attributable to Southwestern's initial capital contribution to
the Separate Account are borne by Southwestern.

The amounts of the deductions from Purchase Payments described above would not
be changed as a result of the proposed Transaction. Thus, any taxes (currently
none) attributable to the income and capital gains of the Separate Account not
borne by Southwestern, and, to a limited extent, fees and expenses of audit
(discussed above under "Expenses"), would continue to be assessed against the
Continuing Separate Account. Since the Board of Managers will be dissolved in
connection with the Transaction and the Continuing Separate Account will have no
employees, the expense category described in (iii) of the previous paragraph
will become expenses of Scudder Fund.

Comparison of Investment Objectives and Policies

The investment objectives and policies of the Separate Account and the Growth
Portfolio are summarized above under "Synopsis - Investment Objectives and
Policies of the Separate Account" and "Synopsis - Investment Objectives and
Policies of Growth Portfolio", respectively. The managements of Southwestern and
the Separate Account believe that the investment objectives of Growth Portfolio
are similar with those of the Separate Account: primarily capital growth.
Moreover, both the Growth Portfolio and the Separate Account intend to pursue
their respective objectives through investment primarily in equity securities
such as common stocks. Both the Growth Portfolio and the Separate Account may,
however, when conditions are viewed as warranting such action, invest a portion
or all (up to 45% of its assets, in the case of the Growth Portfolio) in debt
securities.

The investment policies presently followed by the Separate Account, however,
differ from those of the Growth Portfolio. The investment policies of the
Separate Account have remained unchanged for many years. On the other hand, the
investment policies of the Growth Portfolio are more reflective of current
investment practices, allowing greater flexibility in investment techniques and
strategies. If the Conversion and Exchange are consummated, so that the Separate
Account invests solely in shares of the Growth Portfolio, the Separate Account
will, indirectly, be following the investment policies of the Growth Portfolio.
To the extent that the investment policies of the Growth Portfolio are
inconsistent with fundamental policies of the Separate Account, as currently
structured, the approval of the Transaction by Contract Owners will also
constitute an approval of a change in the fundamental policies of the Separate
Account.

The following summarizes the significant differences in investment policies of
the Separate Account (fundamental policies as noted) and Growth Portfolio:

1. Foreign Securities. The Separate Account may invest in securities of
foreign issuers only if such securities are publicly traded in the United
States. The Growth Portfolio may invest up to 25% of its assets in non-U.S.
dollar denominated equity securities of foreign issuers.

2. Futures. The Separate Account, as a matter of fundamental policy, may
not purchase or sell commodities or commodity contracts, including futures
contracts. The Growth Portfolio may, for hedging purposes and to a

<PAGE>
limited extent, enter into stock index futures contracts (and put and call
option contracts thereon) and forward foreign currency exchange contracts.

3. Loans. The Separate Account, as a matter of fundamental policy, may not
make loans (other than investments from time to time in bonds and other
evidences of indebtedness of a type customarily purchased by institutional
investors); further, the purchase of a publicly distributed debt security is not
considered to be a loan for purposes of this restriction. The Growth Portfolio
similarly may not make loans, except loans of portfolio securities (limited in
amount to one-third of the total assets of the Portfolio) and except to the
extent that the purchase of debt obligations in accordance with its investment
objectives and the entry into repurchase agreements may be deemed to be loans.

4. Borrowing. The Separate Account, as a matter of fundamental policy, may
not borrow money except for temporary purposes where the aggregate amount
borrowed shall not exceed 5% of the value of the assets of the Separate Account
at the time of the loan. The Growth Portfolio's current policy permits it to
borrow up to 10% of its total assets (25% for extraordinary or emergency
purposes) .

5. "When-issued" Securities. The Separate Account's ability to enter into
firm or standby commitment agreements to purchase securities on a forward
delivery basis is limited, as a matter of fundamental policy, by its policy with
respect to borrowing. Growth Portfolio may from time to time make such
commitments, but such commitments will be covered by cash, U.S. Government
securities or other high-grade debt obligations held in a segregated account.

6. Options. The Separate Account does not currently invest in options, and
has no current intention of doing so, although it has no specific policy
restricting such investments. Growth Portfolio will not enter into put or call
option contracts, except that it may write covered call options and put options
on its portfolio securities and may purchase put and call options on securities
indices, and except as discussed in 2 above.

7. Short Sales and Purchases on Margin. The Separate Account will not make
short sales, or purchase securities on margin, except for such short-term
credits as may be necessary for the clearance of purchases of portfolio
securities. The Growth Portfolio will not (1) purchase securities on margin or
(2) make short sales unless it has the right to obtain securities equivalent in
kind and amount to the securities sold.

8. Investment in Securities of a Single Issuer. Both the Separate Account
and Scudder Fund, as a matter of fundamental policy, may not, with respect to
75% of their assets, invest more than 5% of their assets in the securities of a
single issuer. In addition, the Separate Account may not (although this is not a
fundamental policy), invest more than the greater of 5% of its assets or
$250,000 in any one corporation issuing capital stock that is admitted to
trading on a domestic exchange, or which is publicly held and traded in the
over-the-counter market as defined by the Texas Board of Insurance.

9. Illiquid Securities. Neither the Separate Account nor the Growth
Portfolio, as a matter of fundamental policy, may purchase illiquid securities
if such purchase would cause more than 10% of their respective assets to be
invested in illiquid securities. The Separate Account does not own, and has no
current intention of acquiring, any illiquid securities.

In addition, the Separate Account (although these are not fundamental policies)
presently may not (1) invest in securities for the purpose of exercising control
or management; or (2) purchase warrants if more than 5% of its net assets would
be invested in warrants, or if more than 2% of its net assets would be invested
in warrants that are not listed on the New York or American Stock Exchanges.

The Growth Portfolio, on the other hand, may not (1) participate on a joint or a
joint and several basis in any trading account in securities (except that it
may, under certain conditions, join with other investment company and client
accounts managed by Scudder or its affiliates in the purchase or sale of
portfolio securities); (2) purchase or retain

<PAGE>
securities of an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of Scudder Fund or an officer or director of
Scudder if one or more of such individuals owns beneficially more than 0.5% of
the securities of such issuer and if, collectively, such individuals owning more
than 0.5% of such securities together own beneficially more than 5% of such
securities; and (3) pledge its assets except to the extent necessary to secure
permitted borrowings. The Separate Account has no explicit comparable
restrictions as a matter of investment policy.

Participants may compare the respective investment objectives and policies of
the Separate Account as currently structured on the one hand, and of the Growth
Portfolio on the other, in greater detail by referring to the attached
prospectuses of the Separate Account and Scudder Fund, and by requesting and
referring to the Statement of Additional Information relating to this Proxy
Statement/Prospectus, and they are encouraged to do so in considering how to
vote on the proposed Transaction.

Scudder Fund is intended as a funding vehicle for both variable annuity
contracts and variable life insurance policies. It currently does not foresee
any disadvantages to the holder of variable annuity contracts and variable life
insurance policies arising from the fact that the interests of the holders of
such contract and policies may differ. Nevertheless, the Trustees of Scudder
Fund intend to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto.

Capitalization and Historic Performance

The following table shows the capitalization of the Separate Account and Growth
Portfolio as of December 31, 1994 and, on a pro forma basis, for the Growth
Portfolio as of that date giving effect to the Transaction as if it had then
occurred. The capitalization of the Separate Account will not be affected by the
proposed Transaction.

<TABLE>
<CAPTION>
Separate Growth Pro Forma
Account Portfolio Growth Portfolio
------------ ------------- ------------------
<S> <C> <C> <C>
Net Assets $4,990,6081 $256,530,755 $261,521,363

Net Asset Value Per Share $5.710 (Qualified) $12.23 $12.23
5.197 (Nonqualified)

Shares2 Outstanding 685,301 (Qualified) 20,979,934 21,388,082
112,310 (Nonqualified)
1Includes $493,864, representing an annuity fund for currently payable Contracts
2Accumulation Units, in the case of the Separate Account
</TABLE>

The tables below provide a comparison of the total return (i.e., capital changes
and income) of the Separate Account and the Growth Portfolio for the one and
five year periods ended December 31, 1994, and since commencement of operations
of the Growth Portfolio, assuming a $1,000 net investment made at the beginning
of the period (and assuming all dividends and distributions are reinvested). The
results shown for the Growth Portfolio have been adjusted downward, for
comparative purposes, to give effect to (1) the 1.00% per annum mortality and
expense undertaking charge under the Contracts, and (2) the auditing expenses
(at their maximum rate of 0.20% payable by the Continuing Separate Account).
Those charges are not applicable to the Growth Portfolio but will continue to be
charged against the assets of the Continuing Separate Account. Because the
tables are intended only to compare the investment performance of assets
actually under management (restated, in the case of the Growth Portfolio, to
reflect certain of the Separate Account's asset charges as discussed above), no
effect has been given to the deductions from Purchase Payments, prior to their
investment, for sales or administrative expenses under the Contracts.

<PAGE>
Periods Ended
December 31, 1994 Separate Account Growth Portfolio**

1 year $1,058 $ 892
5 years $1,462 $1,414
Since June 30, 1985* $2,135 $2,664

*Growth Portfolio since commencement of operations on July 16, 1985.

**Adjusted to give effect to the 1.00% per annum mortality and expense
undertaking charge under the Contracts and the 0.20% per annum maximum auditing
expense payable by the Continuing Separate Account.

The results shown in the above tables are not an estimate or guarantee of future
investment performance and no representation to that effect is made. The
comparison is included in this Proxy Statement/Prospectus as only one of the
factors participants should consider in deciding how to vote on the proposed
Reorganization. Participants should weigh all of the factors discussed under
"Approval of Exchange" and elsewhere in this Proxy Statement/Prospectus.

Federal Tax Consequences of Transaction

Section 1001(a) of the Code will apply to the transfer of assets to the Growth
Portfolio in the Exchange. Under this section, in the context of the Exchange,
taxable income (or loss) will be recognized to the extent the tax basis in the
assets transferred is less (or greater) than their fair market value on the
Closing Date. To the extent the tax basis in the assets transferred is equal to
their fair market value, no taxable income (or loss) will be recognized.

Pursuant to Section 817(b) of the Code, the tax basis of the Separate Account's
assets will be adjusted to fair market value, but only to the extent that the
accrued appreciation and/or depreciation is reflected in corresponding
adjustments to the reserves associated with the Contracts and/or to certain
other items referred to in Section 817(a) of the Code. Because no such
corresponding adjustments will be made with respect to Southwestern's initial
contribution to the Separate Account, there will be no fair market value tax
basis adjustment to the Separate Account's assets under Section 817(b) of the
Code to reflect any accrued appreciation and/or depreciation that is deemed to
be attributable to Southwestern's initial contribution to the Separate Account.
Consequently, the transfer of assets to the Growth Portfolio in the Exchange may
generate taxable income or loss based on any accrued appreciation or
depreciation in the value of that portion of the Separate Account's assets that
is deemed to be attributable to Southwestern's initial contribution to the
Separate Account. In the Asset Purchase Agreement, Southwestern has agreed to
bear and be solely responsible for any such taxable income or loss.

Accordingly, the Separate Account and the Scudder Fund have received an opinion
of counsel to the effect that (1) the proposed Transaction will not result in
the recognition of gain or loss to the Contract Owners (other than
Southwestern); (2) the proposed Transaction will not adversely affect the status
of the Contracts as annuity contracts under the Code; (3) the tax basis of the
assets received by the Growth Portfolio in exchange for the Scudder Shares
pursuant to the Agreement will, in each instance, be equal to the fair market
value of the assets on the Closing Date as determined pursuant to Section 2.3 of
the Agreement; (4) the Growth Portfolio's holding period for the transferred
assets will commence on the date following the date of the Exchange; and (5) the
Exchange will not adversely affect Scudder Fund with respect to the
diversification requirements of Sections 817(h) or 851(b) of the Internal
Revenue Code.

<PAGE>
Further Information About Scudder Fund

After the Transaction, Contract Owners will have an indirect interest in the
Growth Portfolio, although they will not be "shareholders" of Scudder Fund;
Southwestern will be the shareholder of record of the Growth Portfolio shares
allocated to the Separate Account.

Nevertheless, Contract Owners will have certain voting rights, highlighted below
and described in greater detail in the attached current prospectus of Scudder
Fund. In addition, Contract Owners and participants will receive annual and
semi-annual reports of Scudder Fund, including financial statements, and will be
provided annually with current prospectuses for Scudder Fund.

For additional information concerning the Growth Portfolio and Scudder Fund,
please refer to the accompanying current prospectus for the Scudder Fund dated
May 1, 1995.

Description of Scudder Fund Shares to be Issued

Growth Portfolio is a series of Scudder Variable Life Investment Fund, a
Massachusetts business trust established by Declaration of Trust dated March 15,
1985.

Scudder Fund's authorized capital consists of an unlimited number of shares of
beneficial interest of no par value. The Trustees are authorized to divide the
shares into separate series of which Growth Portfolio is one. Shares entitle
their holders to one vote per share; however, separate votes will be taken by
each series on matters affecting an individual series. Shares have noncumulative
voting rights and no preemptive or subscription rights. Scudder Fund is not
required to hold shareholder meetings annually, although shareholder meetings
may be called for purposes such as electing or removing Trustees, changing
fundamental policies or approving an investment management contract. In the
event that shareholders of Scudder Fund wish to communicate with other
shareholders concerning the removal of any Trustee of Scudder Fund, such
shareholders shall be assisted in communicating with other shareholders for the
purpose of obtaining signatures to request a meeting of shareholders, all in the
manner provided for in Section 16(c) of the 1940 Act as if Section 16(c) were
applicable .

Pursuant to certain decisions of the Supreme Judicial Court of Massachusetts,
shareholders of a Massachusetts business trust may, under certain circumstances,
be held personally liable as partners for the obligations of such a trust. Even
if, however, Scudder Fund were held to be a partnership, the possibility of its
shareholders incurring financial loss for that reason appears remote because
Scudder Fund's Declaration of Trust includes an express disclaimer of
shareholder liability for obligations of Scudder Fund and notice of such
disclaimer is normally given in each agreement, obligation or instrument entered
into or executed by Scudder Fund or its Trustees, and because the Declaration of
Trust provides for indemnification out of Scudder Fund's property for any
shareholder held personally liable for the obligations of Scudder Fund.

Voting of Growth Portfolio Shares to be Held by the Continuing Account

Contract Owners currently have certain voting privileges with respect to their
interest in the Separate Account. Contract Owners may vote, among other things,
at annual meetings to elect members of the Board of the Separate Account, to
ratify the selection of independent accountants and to vote on other matters as
required by the 1940 Act. Under current procedures, Contract Owners cast their
votes directly on the matters being considered. Voting rights and procedures
will be somewhat different following the Transaction, and, by endorsement, the
Contracts will be amended accordingly.

After the Transaction, Contract Owners will have the opportunity to instruct
Southwestern as to the voting of Growth Portfolio shares at meetings of
shareholders of Scudder Fund, in proportion to their respective interests under
the Contracts. Contract Owners entitled to vote will receive proxy material and
a form on which voting instructions may be given. Southwestern will vote the
shares of the Growth Portfolio held by the Continuing Separate Account

<PAGE>
attributable to the Contracts, in accordance with instructions received from
Contract Owners. Such shares for which timely instructions have not been
received from Contract Owners will be voted by Southwestern for or against any
proposition, or Southwestern will abstain, in the same proportion as shares in
the Separate Account for which instructions are received. Southwestern will
vote, or abstain from voting, any Growth Portfolio shares that are not
attributable to Contract Owners in the same proportion as all Contract Owners in
the Continuing Separate Account vote or abstain. However, if Southwestern
determines that it is permitted to vote such shares of the Growth Portfolio in
its own right, it may elect to do so, subject to the then-current
interpretations of the 1940 Act and the rules thereunder.

Unless the Contract has been issued in connection with a deferred compensation
plan, individuals participating under a Contract Owner's retirement plan have
the right to instruct the owner with respect to shares attributable to their
contributions and to such additional extent as the owner's retirement plan may
permit. For purposes of determining voting rights after the Transaction, the
number of shares of the Growth Portfolio held in the Separate Account deemed
attributed to a Participant's interest under a Contract prior to the annuity
date will be determined on the basis of the value of the accumulation units
credited to the Participant's account as of the record date. On or after the
annuity commencement date, the number of attributable shares will be based on
the value of the assets held in the Separate Account to meet annuity obligations
to the payee under the Contracts as of the record date. In either case, the
number of Growth Portfolio shares eligible to be voted is computed by dividing
the "value" so determined by the net asset value of a Growth Portfolio share on
the record date. During the annuity period, the number of votes attributable to
a Contract will generally decrease since funds held in the Separate Account for
an annuitant will decrease over time.

After the Transaction, Contract Owners will exercise their voting privileges
through instructions provided to Southwestern as the depositor of the Continuing
Separate Account which will hold the Growth Portfolio shares. However, it should
be noted that the assets of Growth Portfolio derived from the interests of
Contract Owners under Contracts funded by the Separate Account would represent
approximately 1.90% of the net assets of the Growth Portfolio (and 0.49% of the
net assets of Scudder Fund), on a pro forma combined basis as of December 31,
1994. Accordingly, the effective voting power of Contract Owners will be
substantially diluted as a result of the Transaction.

It should also be noted that, because Scudder Fund is organized as a
Massachusetts business trust, as indicated above, it is not required to elect
Trustees of Scudder Fund annually and does not expect to hold annual meetings
for any other purpose. Nevertheless, if Trustees of Scudder Fund are required to
be elected or any other action is required to be taken at any special or annual
meeting of Scudder Fund, instructions for voting shares underlying the interests
of Contract Owners will, as indicated above, be solicited by means of proxy
materials.

<PAGE>
ADDITIONAL INFORMATION ABOUT GROWTH
PORTFOLIO AND THE SEPARATE ACCOUNT

Information about the Separate Account is incorporated by reference to its
Prospectus dated May 10, 1995, a copy of which is attached hereto as Exhibit B
and incorporated by reference herein. Information about the Separate Account is
also included in the Statement of Additional Information dated June 19, 1995
relating to the Transaction, which includes audited financial statements for the
year ended December 31, 1994, and is incorporated by reference in this Proxy
Statement/Prospectus. The Statement of Additional Information may be obtained
without charge by writing to Southwestern Life Insurance Company, P.O. Box 2699,
Dallas, TX 75221-9917 or by calling 1-214-954-7220 or 1-800-792-4368.
Information in this Proxy Statement/Prospectus concerning the Separate Account
was provided by the Separate Account.

Additional information about Growth Portfolio is included in its Prospectus
dated May 1, 1995, a copy of which is attached hereto as Exhibit C and
incorporated by reference herein. Information about Growth Portfolio is also
included in the Statement of Additional Information dated June 19, 1995 relating
to the proposed Transaction, which includes audited financial statements for the
year ended December 31, 1994, and is incorporated by reference in this Proxy
Statement/Prospectus. The Statement of Additional Information has been filed
with the Securities and Exchange Commission. Copies of the Statement of
Additional Information may be obtained without charge by writing Scudder
Investor Services, Inc., Two International Place, Boston, MA 02110-4103, or by
calling 1-800-225-2470. Information in this Proxy Statement/Prospectus
concerning Growth Portfolio was provided by Growth Portfolio.

Growth Portfolio ordinarily distributes dividends from its net investment
income, if any, quarterly, in January, April, July and October.

ELECTION OF MANAGERS
(Proposal 3)

The following table sets forth certain information regarding
each person nominated for election to the Board of Managers of the Separate
Account. Each of the nominees was elected as a Manager at the 1994 Annual
Meeting of the Separate Account with the exception of John T. Hull. Mr. Hull
joined the Board of Managers effective June 6, 1994 filling an existing vacancy
on the Board. None of the nominees is a Contract Owner.
<TABLE>
<CAPTION>

Name, Business Address,
and Year First Principal Occupations During Last Five Years
Elected as Manager Age and Other Directorships
- ------------------------ --- ------------------------------------------
<C> <C> <C>
Lynn Craft 52 President and Chief Executive Officer,
1601 Elm Street Baptist Foundation of Texas.
Suite 1700
Dallas, Texas 75201-7241
(1985)

John T. Hull1 51 Executive Vice President, Treasurer, Chief Accounting Officer
500 North Akard Street and Chief Financial Officer of Southwestern Life Corporation and
Dallas, Texas 75201 a director and chief financial officer of various of its subsidiaries,
(1994) including Southwestern Life Insurance Company.

- ---------------------------------
1 Indicates "interested person" as defined in the 1940 Act. Mr. Hull is employed
by Facilities Management Installation, Inc., a subsidiary of Southwestern Life
Corporation, and is deemed to be an "interested person" because of his
relationship with Southwestern Life Corporation and certain of its affiliates.
</TABLE>

Name, Business Address,
and Year First Principal Occupations During Last Five Years
Elected as Manager Age and Other Directorships
- ------------------------ --- ------------------------------------------
<S> <C> <C>
Boone Powell, Jr. 58 President and Chief Executive Officer, Baylor University Medical
3500 Gaston Avenue Center; director of Abbott Laboratories; director of Comerica
Dallas, Texas 75246 Bank - Texas, Dallas, Texas.
(1983)

Bill J. Priest, Chairman 77 Consultant to educational institutions and presidential search
7210 Twin Tree Lane work; director of Comerica Bank - Texas, Dallas, Texas.
Dallas, Texas 75214
(1972)
</TABLE>

Under the current Rules and Regulations of the Separate Account,
if elected, nominees will serve until their successors are duly elected and
qualified. Each nominee has consented to being named as a nominee in this Proxy
Statement and to serve as a manager of the Separate Account if elected. However,
if for any reason any such nominee is not a candidate when the election occurs,
which the Board of Managers of the Separate Account does not anticipate, the
enclosed proxy will be voted for the election of a substitute nominee at the
discretion of the person or persons voting the proxies.

The Board of Managers has a standing Executive Committee which is
authorized to act on non- routine matters that may require action of the Board
of Managers on short notice. Dr. Priest and Messrs. Craft and Hull are the
members of the Executive Committee.

The Board of Managers has a standing Audit Committee, whose
members are Dr. Priest and Messrs. Craft and Powell. The Audit Committee is
authorized to review financial information for the purpose of assuring that the
information is accurate, timely, and complete; to ascertain that effective
accounting and internal control systems exist; to oversee the entire audit
function; and to provide a communication link between the Separate Account's
independent auditor and the Board of Managers. The Separate Account does not
have a standing nominating committee.

During 1994, the Board of Managers held 6 meetings and acted by
unanimous consent one time. The Audit Committee held one meeting. No incumbent
member of the Board of Managers participated in fewer than 75% of the total
meetings during his term as director and committee member in 1994 except for Mr.
Hull.

Mr. Hull beneficially owns 181,729 shares (less than 1%) of
common stock and 1,000 shares (less than 1%) of Series 1986-A Convertible
Exchangeable Preferred Stock, Series 1986-A of SLC.

RATIFICATION OF INDEPENDENT AUDITOR
(Proposal 4)

The Board of Managers of the Separate Account has selected
Coopers & Lybrand L.L.P. as the Separate Account's independent auditor for the
fiscal year ending December 31, 1995. Such selection also was approved by a
majority of the managers who are not "interested persons" as defined in the Act.

Coopers & Lybrand L.L.P. has served as the Separate Account's
independent auditor since 1986. Coopers & Lybrand L.L.P. is not expected to have
a representative present at the Meeting and therefore a representative of
Coopers & Lybrand L.L.P. will not be available to make a statement and respond
to questions.

<PAGE>
MANAGEMENT OF THE SEPARATE ACCOUNT

Executive Officers
<TABLE>
<CAPTION>

Capacity with the
Separate Account and Year Principal Occupations
Name Age First Elected During Last Five Years
---- --- --------------------------- -------------------------
<S> <C> <C> <C>
Alfred W. 54 President (1994) Formerly, Chief Pension and Annuity Associate, Vice
Kennon2 and Secretary (1988) President, Annuities and Qualified Plans Administra-
tion, and Vice President-Pension Compliance and
Research, Southwestern Life Insurance Company

Betty M. Jobson2 47 Vice President Investment Portfolio Manager, Fixed Income, South-
and Treasurer (1991) western Life Corporation
</TABLE>

C. Douglas Ward resigned from his positions as a Manager and the President of
the Separate Account on February 28, 1994, concurrently with his resignation as
an officer of Southwestern. Mr. Ward had served as Senior Vice President and
Treasurer of Southwestern since 1987.

Executive Compensation

Officers. During 1994 the Separate Account paid no compensation
to its executive officers.

Managers. During 1994, the members of the Board of Managers who
were not "interested persons" were paid an aggregate of $7,500 by the Separate
Account and $1,200 by Southwestern. This compensation consisted of a $1,000
annual fee and $300 for each Board of Managers meeting and Audit Committee
meeting attended by each such manager during 1994. Members of the Board of
Managers are not provided pension or retirement benefits by the Separate
Account. The following table shows the compensation of the Managers of the
Separate Account for 1994.
<TABLE>
<CAPTION>

Name of Person, Aggregate Compensation
Position From the Separate Account*
- --------------- ---------------------------
<S> <C>
Lynn Craft $2,500

John T. Hull -0-

Boone Powell, Jr. $2,500

Bill J. Priest $2,500
--------------------
*Messrs. Craft, Powell and Priest also received compensation from Southwestern
of $300, $600 and $300, respectively.
</TABLE>

Principal Executive Officers of SLC Financial

The following table sets forth certain information regarding
the principal executive officer and the directors of SLC Financial as of
June 6, 1995.

- ---------------------
2 Indicates "interested person" as defined in the 1940 Act. Ms. Jobson is an
employee and Mr. Kennon is a former employee of Facilities Management
Installation, Inc., a subsidiary of Southwestern Life Corporation, and is deemed
to be an "interested person" because of his or her relationship with
Southwestern Life Corporation and certain of its affiliates.

Capacity with Principal Occupations
Name Age SLC Financial During Last Five Years
- ------------- --- -------------- ------------------------
<S> <C> <C> <C>
John T. Hull3 51 President, Trea- Chief Financial Officer (since 1994), Executive Vice
500 North Akard Street surer and Direc- President (since March 1993) and Treasurer (since
Dallas, Texas 75201 tor 1983) of Southwestern Life Corporation; from 1983 to
1993, Senior President and, from 1979 to 1982,
chief accountant for SLC and certain of its
affiliates; since 1983, Treasurer ofseveral SLC
subsidiaries

Betty M. Jobson 47 Director Investment Portfolio Manager, Fixed Income, South-
100 Mallard Creek Road western Life Corporation
Suite 400
Louisville, Kentucky
40207
</TABLE>

INFORMATION PERTAINING TO INVESTMENT ADVISORY SERVICES

Investment Adviser

As required by the 1940 Act, the Separate Account's
investments are managed by a registered investment adviser, which historically
has been an affiliate of Southwestern. SLC acquired Southwestern on December 31,
1986 and organized SLC Financial in January 1987 to serve as the investment
adviser for certain investment company operations of Southwestern, including the
Separate Account. SLC Financial was registered as an investment adviser with the
Commission in February 1987 and has served as the Separate Account's investment
adviser since May 1, 1987. A chart of affiliates illustrating the relationship
among SLC, Southwestern, and SLC Financial is attached as Appendix I to this
Proxy Statement. The address of SLC and SLC Financial is 500 North Akard Street,
Dallas, Texas 75201.

Investment Advisory Agreement

SLC Financial serves as the investment adviser to the Separate
Account under an Investment Advisory Agreement entered into on May 2, 1994 (the
"Advisory Agreement"). Under the Advisory Agreement, the Separate Account
retains the investment adviser to manage the investment of the Separate
Account's assets, including the placing of orders for the purchase and sale of
portfolio securities. In addition, the investment adviser agrees to obtain and
evaluate economic, statistical, and financial information to formulate and
implement the Separate Account's investment programs. The investment adviser is
required under the Advisory Agreement to provide the Separate Account with
office space, furnishings, facilities, equipment, and personnel necessary to
perform its advisory functions. Under the Advisory Agreement, the Separate
Account pays the investment adviser, as compensation for services rendered and
facilities furnished, a daily advisory fee equal to 0.00089% (0.325% on an
annual basis) of the value of the assets of the Separate Account on each
valuation date. During 1994, the Separate Account paid total advisory fees of
$12,372 to SLC Financial.

The Separate Account also is obligated under the Advisory
Agreement to bear the costs of accounting services provided by the investment
adviser, which include all internal bookkeeping, accounting, and auditing
services and records in connection with the Separate Account's investment
activities, and the calculation of the net asset value of the Separate Account.
The Separate Account further pays all expenses related to its operation,
including audit fees and investment advisory fees. The Advisory Agreement
provides that the investment adviser is not liable to the Separate Account or
any Contract Owner for any act or omission in the absence of willful
- --------
3 Nominee for election to Board of Managers.

<PAGE>
misfeasance, bad faith, gross negligence, or reckless disregard of its
obligations or duties under the Advisory Agreement.

The Advisory Agreement provides that it will expire on May 1
of each year unless it is continued for an additional one-year term. The
Advisory Agreement may be continued by (i) a majority of the Board of Managers
of the Separate Account in the manner prescribed by the 1940 Act (including a
vote of the majority of the members of the Board of Managers of the Separate
Account who are not parties to the Advisory Agreement or "interested persons,"
as defined in the 1940 Act, of any party) or (ii) a vote of a majority of the
votes entitled to be cast by Contract Owners, subsequent to approval by vote of
a majority of the members of the Board of Managers of the Separate Account who
are not parties to the Advisory Agreement or "interested persons" of any party
in the manner prescribed by the 1940 Act. The continuation of the Advisory
Agreement through May 2, 1996 has been unanimously approved by the Board of
Managers of the Separate Account. The Separate Account and SLC Financial will
terminate the Advisory Agreement if the Conversion and Exchange are consummated.

The Advisory Agreement was last submitted to a vote of the
Separate Account's Contract Owners for initial approval on May 2, 1994. The
Advisory Agreement provides that any amendment to such agreement must be
approved by the vote of a majority of the Board of Managers of the Separate
Account, including a majority of those members of the Board of Managers who are
not parties to such agreement and who are not "interested persons" of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and, if required by the 1940 Act, by the vote of a majority of the
votes entitled to be cast by the Contract Owners. The Advisory Agreement
automatically terminates upon assignment, and may be terminated by either party
upon 60 days written notice.

Allocation of Brokerage Commissions on Portfolio Transactions

The Advisory Agreement authorizes the investment adviser to
select brokers and dealers to execute portfolio transactions. The Advisory
Agreement does not require the investment adviser to serve the Separate Account
exclusively. The Separate Account's portfolio transactions will be conducted
independently of those of SLC, except when decisions are made to purchase or
sell securities with respect to the portfolios of the Separate Account and/or
SLC simultaneously. Under those circumstances, the portfolio transactions will
be averaged as to price and allocated as to amount in accordance with the daily
purchase or sale orders actually placed.

In all purchases and sales of securities for the portfolio of
the Separate Account, the primary considerations of the Separate Account are to
obtain efficient execution of orders and the most favorable net prices. In
accordance with these considerations, orders for the purchase and sale of
over-the-counter securities, for example, generally will be placed directly with
the principal market maker unless a more efficient execution and more favorable
net price can be obtained otherwise. The Advisory Agreement expressly requires
that the investment adviser make a good faith determination of the most
favorable net price available at the time of the portfolio transaction.

When purchases and sales of securities for the Separate
Account's portfolio are made, a brokerage commission usually must be paid on
transactions executed on an exchange, and a "mark-up" (the dealer's profit) is
included in the price of the securities transactions not executed on an
exchange. All such commissions and "mark-ups" will be paid by the Separate
Account. There are many cases in which a number of different brokers or dealers
are equally able to execute an order efficiently and to provide the Separate
Account with the most favorable net price then available. In such cases, it will
be the policy of the Separate Account and the investment adviser, where
possible, to select a broker or dealer to execute the transaction that has
furnished to the Separate Account or the investment adviser statistical,
investment, and economic research or advisory information necessary in the
day-to-day operation of the Separate Account. However, the investment adviser is
not permitted under the Advisory Agreement to select a broker or dealer to
execute a transaction as a reward or compensation related to sales of the
Separate Account's securities by such broker or dealer. The investment adviser
may utilize information furnished by brokers or dealers in connection with the
respective portfolio transactions of the Separate Account and other persons.

<PAGE>
With respect to its portfolio transactions, the Separate
Account paid total brokerage commissions of $800.00 in 1994. Of this amount,
approximately 100% has been allocated to brokers or dealers that have furnished
the Separate Account with statistical, investment, and economic research or
advisory information.

Distributor

The distributor of the Separate Account's contracts is
Philadelphia Life Asset Planning Company ("PLAPCO"). PLAPCO is a wholly-owned
subsidiary of Philadelphia Life Insurance Company, which is a wholly-owned
subsidiary of Wabash Life Insurance Company, which is a wholly-owned subsidiary
of Life Partners Group, Inc. The address of PLAPCO is 400 Market Street, 11th
Floor, Philadelphia, Pennsylvania 19106. The address of Philadelphia Life
Insurance Company, Wabash Life Insurance Company, and Life Partners Group, Inc.
is 7887 East Belleview, Englewood, Colorado 80111. Under the terms of the
Distribution and Administrative Services Agreement dated May 1, 1987 between
Southwestern and PLAPCO, Southwestern is responsible for all sales and
administrative expenses relating to the sale of individual and group annuity
contracts issued by it.

Separate Account Administration and Mortality Expense Guarantee

Under the terms of the Contracts issued to Contract Owners,
Southwestern receives a daily fee of 0.00274% (1.00% on an annual basis) of the
average net asset value of the Separate Account for expenses of administering
the Separate Account and guaranteeing the mortality expenses of the Separate
Account, which are determined by prescribed annuity tables. Southwestern's fee
for the year ended December 31, 1994 was $48,843.

VOTING INFORMATION

This Proxy Statement/Prospectus solicits the accompanying proxy and voting
instructions on behalf of the Board of Managers of the Separate Account, for use
at the Meeting of Contract Owners to be held on July 28, 1995 and at any
adjournment or adjournments thereof.

Only Contract Owners of record at the close of business on June 6, 1995, will be
entitled to notice of and to vote at the Meeting. On that date, there were
799,408 votes entitled to be cast by Contract Owners in the Separate Account. Of
the total Separate Account votes, 721,440 were in respect of accumulation units
and 77,608 were in respect of annuity units.

Banking institutions, brokerage firms, custodians, trustees, nominees, and
fiduciaries who are record owners of Variable Annuity Contracts are requested to
forward a voting instruction form and the proxy solicitation material to each
Beneficial Owner under such contract. Upon request, Southwestern will reimburse
such record holders for their reasonable out-of-pocket forwarding expenses.

To ensure representation at the Meeting, each Contract Owner entitled to vote at
the Meeting is requested to complete, date, and sign the enclosed proxy card and
return it to the Separate Account in the envelope provided for that purpose,
which requires no postage if mailed in the United States. Furthermore, each
Beneficial Owner has the right to provide instructions to the record Contract
Owner with respect to the votes attributable to his or her individual account.
To provide these instructions, each Beneficial Owner receiving a voting
instruction form is requested to complete, date, and sign such form and return
it promptly to the record Contract Owner.

Each voting instruction form that is properly executed by a Beneficial Owner and
timely received by a Contract Owner must be voted by the Contract Owner in
accordance with such instructions. Votes for which instructions have not been
received from Beneficial Owners must be cast by the Contract Owner in the same
proportion as votes for which instructions have been received. However, if the
Contract Owner does not receive any voting instructions from Beneficial Owners,
the Contract Owner may cast the votes to which it is entitled in its discretion.

<PAGE>
Under the Rules and Regulations of the Separate Account, as currently in effect,
the number of votes that a Contract Owner may cast, during the accumulation
period of a Contract, is equal to the number of Accumulation Units under his or
her Contract. A participant receiving annuity payments under a group Contract
may cast the number of votes equal to the dollar amount of assets in the
Separate Account held to meet the annuity obligations related to that
participant divided by the then value of an accumulation unit in the Separate
Account. Southwestern casts votes only for those accumulation units in the
Separate Account that it owns; it does not vote any units it does not own and as
to which a proxy has not been given.

Unless the Contract has been issued in connection with a retirement plan that
provides otherwise, individual participants under a group Contract have the
right to instruct the Contract Owner with respect to votes attributable to their
contributions and to such additional extent as the Contract Owner's retirement
plan may permit.

All proxies properly executed and returned to Southwestern on the accompanying
form will be voted in accordance with the instructions marked thereon. If
instructions are not marked thereon, proxies will be voted FOR each proposal on
the agenda for the Annual Meeting.

The proxy is revocable at any time prior to being voted by notifying the
Secretary to the Board in writing, by submitting a later-dated proxy or by
voting in person at the Meeting. A separate Proxy Statement/Prospectus and proxy
card will be mailed to you with respect to each Contract funded through the
Separate Account. It is imperative that if you receive more than one proxy card,
you sign, date and return all of them.

All expenses in connection with the solicitation of proxies are being borne by
Southwestern and no reimbursement will be sought from the Separate Account or
the Growth Portfolio. Proxies will be solicited by full-time employees of
Southwestern or its affiliates. The solicitation will be by mail and may also be
by telephone, telegram, or personal interviews. Approval of each of Proposal No.
1 and Proposal No. 2 and the election of each nominee for Manager requires the
affirmative vote of the lesser of (A) 67% or more of the voting securities
present at the Meeting, if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy; or (B) more than 50% of
the outstanding voting securities. Votes will be tabulated manually at the
Meeting. An abstention by shares represented at the Meeting on any proposal will
not decrease the number of votes required to adopt such proposal, and,
therefore, while not recorded as a vote against, will have the effect of a vote
against such proposal.

A simple majority of the eligible votes outstanding represented either in person
or by proxy constitutes the quorum necessary for the transaction of business by
the Separate Account at the Meeting. If a quorum is not present at the Meeting,
the Meeting may be adjourned for the purpose of further proxy solicitation, or
for any other purpose. Unless otherwise instructed, proxies will be voted in
favor of any adjournment. At any subsequent reconvening of the meeting proxies
will (unless previously revoked) be voted in the same manner as they would have
been voted at the original meeting.

Security Ownership

The following table reflects certain information regarding the ownership of the
Contracts as of June 6, 1995. Such information is included for persons known by
the Separate Account to be entitled to cast 5% or more of the votes entitled to
be cast at such date. The persons named below are the record owners of group
variable annuity contracts under which the indicated number of votes may be cast
in accordance with voting instructions furnished to such record owners.

<PAGE>
<TABLE>
<CAPTION>
Name and Address of Votes Entitled Percentage of Votes
Contract Owner to be Cast Entitled to be Cast
- --------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
University of Texas at Austin 1 129,703 16.23%
P.O. Box 8047
Austin, Texas 78712

Southwestern Life Insurance Company 2,3 102,348 12.81%
500 North Akard Street
Dallas, Texas 75201

Dallas County Community College District 1 96,143 12.03%
701 Elm Street
Dallas, Texas 75202

Culver City Unified 49,191 6.16%
School District 1
4034 Irving Place
Culver City, California 90230
- ------------------------------
</TABLE>

1 Shared voting and investment powers.

2 Sole voting and investment powers. Southwestern is a group Contract Owner and
also holds directly, as of June 6, 1995, a 12.51% interest in the Separate
Account, in respect of the initial contribution it made to the Separate Account
at the time the Separate Account was organized.

3 See the Chart of Affiliates attached as Appendix D to this Proxy
Statement/Prospectus for an illustration of the relationship between
Southwestern and its direct and indirect parents. Because of that relationship,
such parents may be deemed to have an indirect beneficial interest in the votes
entitled to be cast by Southwestern.

The following table reflects certain information regarding the ownership of
Growth Portfolio shares as of June 6, 1995. Such information is included for
persons known by the Trustees to be entitled to cast 5% or more of the votes
entitled to be cast at such date. The persons named below are record and
beneficial owners.

<TABLE>
<CAPTION>
Percentage of
Name and Address Votes Entitled Votes Entitled
of Record Owner to be Cast to be Cast
- ---------------- --------------- ---------------
<S> <C> <C>
Intramerica Life Insurance 6,223,234.357 29.16%
Company ("Intramerica")
1 Blue Hills Plaza
Pearl River, NY 10965
(Formerly First Chapter Life
Insurance Company)

Mutual Of America Life Insurance 13,891,653.91 65.08%
Company of New York ("Mutual")
666 5th Avenue
New York, NY 10103
</TABLE>

If the Transaction is consummated Intramerica and Mutual will own 28.62% and
63.88% of Growth Portfolio's shares, respectively, at the Closing Date.

<PAGE>
As of June 6, 1995, the officers and Trustees of Growth Portfolio as a group
beneficially owned less than 1% of the outstanding shares of beneficial interest
of Growth Portfolio. As of June 6, 1995, Southwestern owned 0% of Growth
Portfolio's outstanding shares. If the Transaction had occurred on June 6, 1995,
Southwestern would have owned 1.85% of the Growth Portfolio in the aggregate,
and the beneficial owners of Contracts listed in the table above would have,
based on voting power, indirectly owned the indicated percentages of the Growth
Portfolio's shares:

University of Texas 0.30%
Southwestern Life Insurance Company 0.24%
Dallas County Community College District 0.22%
Culver City Unified School District 0.11%

The Board of the Separate Account unanimously recommends a vote FOR the Proposed
Transaction.

Please promptly date, mark your preferences on, sign and mail the enclosed
proxy, especially if you do not plan to attend the meeting. Please use the
enclosed postage prepaid envelope. Whether the number of your votes is small or
large, it is important that your Contract or participation be represented.
Please be sure to vote on the Proposals to be considered at the Annual Meeting.

MISCELLANEOUS

Availability of Other Information

The Separate Account and Scudder Fund are each subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act and in
accordance therewith file reports and other information with the Securities and
Exchange Commission. Proxy materials, reports, proxy and information statements
and other information filed by the Separate Account and Scudder Fund can be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission in Washington, D.C. Copies of such material
can be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.

Interest of Certain Persons

The following receive payments from Growth Portfolio for services rendered
pursuant to contractual arrangements with Growth Portfolio: Scudder, Stevens &
Clark, Inc., as investment adviser, receives payments for investment management
services described above and Scudder Fund Accounting Corp. receives payments for
its fund accounting administrative services. Southwestern holds (as of June 6,
1995) a 12.51% interest in the Separate Account in respect of its initial
capital contribution to the Separate Account.

Financial Statements

The financial statements for both the Scudder Variable Life Investment Fund -
Capital Growth Portfolio and the Separate Account which are incorporated by
reference herein to the Statement of Additional Information have been audited by
Coopers & Lybrand L.L.P.

Legal Matters

Certain legal matters concerning the issuance of securities by the Separate
Account will be passed upon by Daniel G. Gail, Esq., Executive Vice President,
General Counsel and Secretary of Southwestern Life Corporation, 500 North Akard,
Dallas, Texas 75201, and Southwestern. Mr. Gail is employed by Facilities
Management Installation, Inc., an affiliate of Southwestern.

<PAGE>
Certain legal matters concerning the tax consequences of the Transaction will be
passed upon by Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville, Kentucky
40202.

Certain legal matters concerning the issuance of shares of Growth Portfolio will
be passed upon by Dechert Price & Rhoads, Ten Post Office Square, Boston,
Massachusetts 02109.

Transfer Agent and Custodians

Scudder Service Corporation is the transfer and dividend paying agent for Growth
Portfolio. The main office of Scudder Service Corporation is Two International
Place, Boston, Massachusetts 02110-4103. Portfolio securities of Growth
Portfolio are held, pursuant to a custodian agreement, by State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as Custodian.
NationsBank of Texas, N.A., P.O. Box 832222, Dallas, Texas 75283-2222, serves as
the custodian for the Separate Account.

ANNUAL REPORT AND CONTRACT OWNER PROPOSALS

The Separate Account's 1994 Annual Report has been sent to
each Contract Owner and each Beneficial Owner of the Separate Account as of
December 31, 1994. The Annual Report does not form any part of the material for
the solicitation of proxies.

The rules of the Commission require the Separate Account to
disclose the date by which proposals by Contract Owners intended to be presented
at the next annual meeting of Contract Owners must be received by the Separate
Account for inclusion in the Separate Account's proxy statement and proxy for
that meeting. Calculated in accordance with those rules, that date is March
1, 1996. If the Conversion and Exchange are consummated, the Separate Account,
as a unit investment trust, will no longer hold annual meetings of Contract
Owners.

OTHER MATTERS

The Board of Managers of the Separate Account knows of no other matters that are
likely to be brought before the Meeting. In the event any other matters do
properly come before the Meeting, however, the persons named in the enclosed
proxy will vote the proxies in accordance with their best judgment.

The Separate Account will furnish, without charge, a copy of the 1994 Annual
Report to a Contract Owner upon request. Requests should be directed to the
Separate Account at 500 North Akard, Dallas, Texas 75201-3320; telephone:
1-800-792-4368.

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

Stockholder and Board of Directors
SLC Financial Services, Inc.:

We have audited the accompanying balance sheet of SLC Financial
Services, Inc., (formerly I.C.H. Financial Services, Inc.) as of December 31,
1994. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.

In our opinion, the balance sheet referred to above presents fairly,
in all material respects, the financial position of SLC Financial Services,
Inc., as of December 31, 1994, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
February 21, 1995

<PAGE>
SLC FINANCIAL SERVICES, INC.
BALANCE SHEET
December 31, 1994

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

ASSETS

Cash $ 33,656
Short-Term Investment 180,000
Accounts Receivable 1,590
Prepaid Expenses 560
--------
Total Assets $215,806
========

LIABILITIES AND STOCKHOLDER'S EQUITY

Accounts Payable $1,235
------

Total Liabilities 1,235

Stockholder's equity:
Common stock, $.01 par value, 10,000
shares authorized, 1,000 shares
issued and outstanding 10
Additional paid-in capital 990
Retained earnings 213,571
--------

Total Stockholder's Equity 214,571
-------

Total Liabilities and Stockholder's Equity $215,806
========

The accompanying notes are an integral part of this balance sheet.

<PAGE>
SLC FINANCIAL SERVICES, INC.
NOTES TO BALANCE SHEET

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

1. Organization and Significant Accounting Policy
----------------------------------------------------------------------------

SLC Financial Services, Inc. (the "Company"), formerly known as I.C.H.
Financial Services, Inc., is a wholly-owned subsidiary of Southwestern Life
Corporation ("Southwestern"). The Company provides investment advisory
services to affiliated investment companies.

Federal Income Taxes
---------------------------------------------------------------------------

The Company joins with Southwestern and certain other affiliated companies
in filing a consolidated federal income tax return. There are no agreements
among members of the consolidated tax group for the allocation of the
consolidated current or deferred tax expense. No taxrelated balances due to
or from affiliates are recorded in the accompanying balance sheet, as no
amounts have been assessed by Southwestern.

2. Short-Term Investment
---------------------------------------------------------------------------

The short-term investment is a $180,000 one-month repurchase agreement
reflected at cost which matured on January 20, 1995 and earned interest at
an annual rate of 5.00%.

3. Related Party Transactions
---------------------------------------------------------------------------

Southwestern and/or certain of its subsidiaries provide administrative
services on behalf of the Company. These services are provided at no cost
to the Company. Included in the accompanying balance sheet are accounts
receivable of $1,365 due from an affiliate.

<PAGE>
Appendix I

CHART OF AFFILIATES
At June 6, 1995

Southwestern Life Corporation
|
|
------------------------------
| |
| |
100% 100%
| |
| |
| |
SWL Holding Corporation SLC Financial
| Services, Inc.
|
|
|
|
100%
|
|
|
|
Southwestern Life
Insurance Company

The address of Southwestern Life Corporation, Southwestern Life Insurance
Company, SLC Financial Services, Inc. and SWL Holding Corporation is 500 North
Akard Street, Dallas, Texas 75201.

<PAGE>
Exhibit A
---------

ASSET TRANSFER AGREEMENT
<PAGE>

TABLE OF CONTENTS

Page

1. Definitions......................................................... 1

2. The Transaction..................................................... 2
2.1 Transfer and Exchange of Assets........................ 2
2.2 Assets of the Separate Account to be Trans-
ferred................................................. 2
2.3 Computation of Net Asset Value......................... 2
2.4 Conversion of the Separate Account..................... 3

3. Actions to be taken prior to the Closing............................ 3
3.1 Preparation of Scudder N-14............................ 3
3.2 Meeting of Contract Owners............................. 3
3.3 Conduct of Business Prior to Closing................... 3
3.4 Delivery of Non-cash Assets of the Separate
Account................................................ 4

4. The Closing......................................................... 5
4.1 Closing Date........................................... 5
4.2 Actions to be taken at the Closing..................... 5
(1) Southwestern and Separate Account Officer
Certificates................................... 5
(2) Scudder Fund Officer Certificate............... 5
(3) Opinion of Separate Account Counsel............ 5
(4) Opinion of Counsel For Scudder Fund............ 5
(5) Delivery of Cash............................... 6
(6) Issuance of Scudder Shares..................... 6

5. Liabilities and Expenses............................................ 6

6. Separate Account Representations and Warranties..................... 6
6.1 Good Standing.......................................... 6
6.2 Registration under 1933 and 1940 Acts.................. 7
6.3 Lawful Sale of Contracts............................... 7
6.4 Year-End Financials.................................... 7
6.5 Limited Review Financials.............................. 7
6.6 No Material Litigation................................. 7
6.7 Board of Managers Approval............................. 7
6.8 No Material Contracts.................................. 8
6.9 Good and Marketable Title.............................. 8
6.10 Books and Records...................................... 8
6.11 VAF N-3 Not Misleading................................. 8
6.12 Scudder N-14........................................... 8
6.13 Tax Diversification.................................... 9

7. Representations and Warranties of Scudder Fund...................... 9
7.1 Good Standing.......................................... 9
7.2 Registration under 1933 and 1940 Acts.................. 9
7.3 Lawful Sale of Shares.................................. 9
7.4 Year-End Financials.................................... 10

<PAGE>

Page

7.5 Unaudited Semiannual Financials........................ 10
7.6 No Contingent Liabilities.............................. 10
7.7 Board of Trustees Approval............................. 10
7.8 No Material Adverse Change............................. 10
7.9 No Material Contracts.................................. 11
7.10 Taxes and Related Filings.............................. 11
7.11 Contract Owners........................................ 12
7.12 Scudder N-1A Not Misleading............................ 12
7.13 Scudder N-14........................................... 12

8. Conditions Precedent to Closing..................................... 12
8.1 Internal Revenue Code.................................. 13
8.2 Contract Owner Approvals............................... 13
8.3 Pending or Threatened Proceedings...................... 13
8.4 Registration Statement................................. 14
8.5 Regulatory Approvals................................... 14
8.6 Comfort Letter......................................... 14
8.7 State Securities Laws.................................. 14
8.8 Performance of Covenants............................... 14
8.9 Representations and Warranties......................... 14
8.10 Delivery of Legal Opinions............................. 14
8.11 Participation Agreement................................ 14
8.12 Due Diligence.......................................... 14

9. Indemnification..................................................... 15

10. Addresses........................................................... 15

11. Termination......................................................... 16

12. Exhibits............................................................ 16

13. Miscellaneous....................................................... 16

14. Publicity........................................................... 17

15. Amendments.......................................................... 17

16. Massachusetts Business Trust........................................ 17

<PAGE>

ASSET TRANSFER AGREEMENT

THIS ASSET TRANSFER AGREEMENT ("Agreement") is made as of this 11th day of
May, 1995, by and among Southwestern Life Insurance Company, an insurance
company organized under the laws of Texas ("Southwestern"), on its own behalf
and on behalf of Variable Annuity Fund I of Southwestern Life, a separate
account organized and existing under the laws of Texas (the "Separate Account"),
and Scudder Variable Life Investment Fund ("Scudder Fund"), a Massachusetts
business trust on behalf of its Capital Growth Portfolio (the "Growth
Portfolio").

WITNESSETH:

WHEREAS, Scudder Fund is registered under the Investment Company Act of
1940 (the "1940 Act") as an open-end management, series investment company
authorized to issue an unlimited number of shares of beneficial interest with no
par value in multiple series;

WHEREAS, the Growth Portfolio is a diversified series of Scudder Fund;

WHEREAS, the Separate Account is registered under the 1940 Act as a
management investment company;

WHEREAS, the Separate Account is a separate account established by
Southwestern to fund certain variable annuity contracts issued by Southwestern
("Contracts");

WHEREAS, SLC Financial Services, Inc. ("SLC Financial") serves as
investment adviser to the Separate Account and Scudder, Stevens & Clark, Inc.
("Scudder") serves as investment adviser to Scudder Fund and the Growth
Portfolio; and

WHEREAS, the Separate Account desires to reorganize and convert from a
management investment company to a unit investment trust, subject to the receipt
of all required approvals and subject to the exemptive order granted to Scudder
Fund under Section 6(c) of the 1940 Act which order is dated October 11, 1985,
through the conveyance to the Growth Portfolio of substantially all the assets
of the Separate Account in exchange for voting shares of beneficial interest of
the Growth Portfolio ("Scudder Shares") in the manner set forth herein.

NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:

1. Definitions. Capitalized terms used in this Agreement shall have the meanings
ascribed to them in Exhibit 1 attached hereto.

<PAGE>

2. The Transaction.

2.1 Transfer and Exchange of Assets. Effective as of the Closing,
Southwestern, on behalf of the Separate Account, shall transfer, assign, convey
and contribute to Scudder Fund for the Growth Portfolio all of the assets of the
Separate Account (other than as described in Section 2.2) in exchange for and
against delivery by Scudder Fund to Southwestern, on behalf of the Separate
Account, on the Closing Date of Scudder Shares (including, if applicable,
fractional shares) having an aggregate net asset value equal to the market value
of the assets so transferred, assigned and delivered, all as determined and
adjusted as provided in Section 2.3.

2.2 Assets of the Separate Account to be Transferred. The assets to be
transferred, conveyed and assigned by the Separate Account pursuant to this
Agreement shall consist of all property allocated to the Separate Account as of
the Closing, including, without limitation, all cash (whether in U.S. or foreign
curren- cies), cash equivalents, securities and dividend and interest
receivables; except that the Separate Account shall retain, and shall deduct
from the assets of the Separate Account to be transferred pursuant to this
Agreement, cash in an amount estimated by the Separate Account to be sufficient
to pay all the current liabilities of the Separate Account, including, without
limitation, (i) amounts owed under any VA Contract; and (ii) accounts payable
and other accrued and unpaid expenses, if any, incurred in the normal operation
of its business up to and including the Closing Date.

2.3 Computation of Net Asset Value. For purposes of determining the number
of Scudder Shares to be issued and delivered to Southwestern, on behalf of the
Separate Account, at the Closing, the net asset value per share of the Scudder
Shares and the market value of the assets of the Separate Account to be
transferred and conveyed pursuant to this Agreement shall, in each case, be
determined as of the Close of Trading on the NYSE on the Valuation Date, after
the declaration and payment of any dividend on that date. The net asset value of
the Scudder Shares shall be computed in the manner set forth in the Scudder
N-1A.

In determining the value of the securities transferred by the Separate
Account to the Growth Portfolio, each security shall be priced in accordance
with the policies and procedures described in the Scudder Fund valuation
resolution as currently in force, and as summarized in the Scudder N-1A, subject
to such adjustments as agreed to by the Separate Account and Scudder Fund. All
such computations shall be made in cooperation with the auditors for the
Separate Account and Scudder Fund, respectively, who will apply certain
procedures designed to test such computations, as agreed by Scudder Fund and the
Separate Account.

<PAGE>

If trading on the NYSE or on another exchange or market on which securities
held by the Separate Account or the Growth Portfolio is traded shall be
disrupted on the Valuation Date so that, in the judgment of both Scudder Fund
and the Separate Account, accurate appraisal of the assets of the Separate
Account to be transferred hereunder or the assets of the Growth Portfolio is
impracticable, the Valuation Date shall be postponed until the first Business
Day after the day on which trading on such exchange or in such market shall, in
the judgment of both Scudder Fund and the Separate Account, have been resumed
without disruption. In such event, the Closing Date shall be postponed until one
Business Day after the Valuation Date.

2.4 Conversion of the Separate Account. Effective with the Closing, the
rules and regulations of the Separate Account shall be amended and restated in
the form attached hereto as Exhibit 2.4.

3. Actions to be taken prior to the Closing.

3.1 Preparation of Scudder N-14. Each of the parties agrees to cooperate
fully and promptly take all commercially reasonable actions necessary (a) to
prepare, file with the Commission and have declared effective the Scudder N-14;
(b) to register, or obtain an exemption from registration for, the securities to
be issued by it in the transactions contemplated by this Agreement under
applicable state securities laws requiring such registration; and (c) to satisfy
the conditions to the Closing set out in this Agreement.

3.2 Meeting of Contract Owners. The Separate Account will: (i) take all
commercially reasonable actions necessary to call, give notice of, convene and
hold a meeting of the owners of Contracts, as soon as practicable and in
accordance with applicable state and Federal law, for the purpose of approving
this Agreement and the transactions contemplated hereby and for such other
purposes as may be necessary and desirable; and (ii) so long as consistent with
the exercise of their fiduciary duties, the Board of Managers of the Separate
Account will recommend to owners of Contracts and Participants the approval of
this Agreement and the transactions contemplated hereby and such other matters
as may be submitted to such Contract owners and Participants in connection with
the transactions contemplated herein.

3.3 Conduct of Business Prior to Closing. From the date of this Agreement,
through the Closing Date, the Separate Account will conduct its business in
accordance with its governing Rules and Regulations and in substantial
compliance with the Texas Insurance Laws and the terms of the Contracts. Except
to the extent required to perform its obligations under the Contracts or any
other duties imposed upon it by law, including satisfaction of the
diversification requirements of Section 817(h) of the Code and the regulations
promulgated thereunder, the Separate Account will consult with

<PAGE>

Scudder Fund in connection with its purchases and sales of securities prior to
Closing and, after receipt of evidence reasonably satisfactory to it that all
conditions precedent to the consummation of the transactions contemplated by
this Agreement have been or will be met by the Closing Date, will exercise all
commercially reasonable efforts to sell those portfolio securities which Scudder
Fund has identified in writing as inconsistent with the investment policies
governing the Growth Portfolio.

3.4 Delivery of Non-cash Assets of the Separate Account. All securities and
other non-cash assets allocated to the Separate Account shall be delivered on
the Delivery Date by the Separate Account to the Custodian to be held in
conformity with applicable custody provisions under the 1940 Act and the Texas
Insurance Laws until the Closing for the account of the Separate Account. On the
Delivery Date, the Separate Account shall deliver to the Custodian the
Securities List. On the Closing Date, prior to the Closing, Scudder Fund shall
obtain from the Custodian a certificate of an authorized officer stating that
the assets have been delivered by the Separate Account to the Custodian pursuant
to this Agreement and that they are held in proper form by the Custodian as of
the Closing Date.

Securities so delivered shall be duly endorsed in proper form for transfer
at the Closing in such condition as to constitute a good delivery thereof, in
accordance with the custom of brokers, and shall be accompanied by all necessary
stock transfer stamps (or other documentation evidencing payment of local
taxes), if any, or a check for the appropriate purchase price of such stamps (or
payment of such local tax).

If, on the Delivery Date, the Separate Account is unable to make delivery
of securities held by it because such securities have not yet been delivered to
the Separate Account or its broker or brokers or for any other reason, Scudder
Fund shall be deemed to waive the delivery requirements of this Section 3.4 with
respect to said undelivered securities, if the Separate Account has delivered to
the Custodian, by or on the Delivery Date, with respect to said undelivered
securities, executed copies of an agreement of assignment, escrow agreement and
due bills executed on behalf of said broker or brokers, together with such other
documents as may be required by Scudder Fund and the Custodian (including
brokers' confirmation slips), to ensure that all such securities will be
delivered to Scudder Fund.

Notwithstanding the foregoing, it is expressly understood that the Separate
Account, after consultation with an authorized representative of Scudder Fund,
may hereafter sell any securities owned by it in the ordinary course of its
business as a diversified, open-end, management investment company.

<PAGE>

4. The Closing.

4.1 Closing Date. The Closing shall be at the offices of Dechert, Price &
Rhoads, Ten Post Office Square, Boston, MA 02109 at 9:00 a.m. Eastern time, on
the Closing Date.

4.2 Actions to be taken at the Closing. The following actions shall be
taken by the parties at the Closing and shall be deemed to take place
simultaneously as of 9:00 a.m. Eastern time on the Closing Date unless otherwise
agreed in writing by the parties.

(1) Southwestern and Separate Account Officer Certificates. Each of
Southwestern and the Separate Account shall deliver to Scudder Fund a
certificate of a duly authorized officer to the effect that the representations
and warranties made by it in this Agreement are true and correct in all material
respects as of the Closing, that it has complied in all material respects with
the agreements and covenants required by the Agreement to be performed by it
prior to the Closing and that, to its best knowledge, there are no pending or
threatened proceedings of the type described in Section 8.3, together with
certified copies of those resolutions adopted by its Board of Managers or
Directors authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated herein.

(2) Scudder Fund Officer Certificate. Scudder Fund shall deliver to
Southwestern and the Separate Account a certificate of a duly authorized officer
to the effect that the representations and warranties made by Scudder Fund in
this Agreement are true and correct in all material respects as of the Closing,
that the Scudder Fund has complied in all material respects with the agreements
and covenants to be performed by it prior to the Closing, that the conditions
set out in Sections 8.5 and 8.7 have been satisfied, and that, to the best
knowledge of the Scudder Fund, there are no pending or threatened proceedings of
the type described in Section 8.3, together with certified copies of those
resolutions adopted by the Board of Trustees of Scudder Fund authorizing
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein.

(3) Opinion of Separate Account Counsel. The Separate Account shall
furnish Scudder Fund with an opinion of counsel to the Separate Account,
reasonably satisfactory to Scudder Fund substantially in the form of Exhibit
4.2(3) to this Agreement.

(4) Opinion of Counsel For Scudder Fund. Scudder Fund shall furnish
the Separate Account with an opinion of Dechert Price & Rhoads, counsel to
Scudder Fund, reasonably satisfactory to the Separate Account in substantially
the form of Exhibit 4.2(4) to this Agreement.

<PAGE>

(5) Delivery of Cash. Except for the cash to be etained by the
Separate Account, as provided in Section 2.2, all cash held by the Separate
Account shall be delivered in the form of currency or wire transfer in Federal
Funds, payable to the order of the account of Scudder Fund for the Growth
Portfolio at the Custodian.

(6) Issuance of Scudder Shares. Effective as of the Closing, Scudder
Fund shall record on its books the ownership of Scudder Shares by Southwestern
and shall deliver to Southwestern at the Closing a confirmation for the Scudder
Shares registered in the name of Southwestern. Effective as of the Closing,
Southwestern shall cause the Scudder Shares it receives on the Closing Date to
be allocated to, and recorded and held on its records as assets of, the Separate
Account.

5. Liabilities and Expenses.

The parties expressly agree that the Growth Portfolio shall not assume any
liabilities of the Separate Account in connection with the transaction
contemplated by this Agreement. The Growth Portfolio shall not acquire any
liabilities of the Separate Account, whether known or unknown, or contingent or
determined. The Separate Account will discharge all known liabilities, so far as
may be possible, prior to the Closing Date other than those arising under the
Contracts and except as provided for in Section 2.2 and subject to the last
sentence of this Section 5. The Separate Account and Southwestern, on the one
hand, and the Growth Portfolio and Scudder Fund, on the other, shall each bear
its own expenses in connection with carrying out this Agreement. Without
limiting the generality of the foregoing, Southwestern shall bear and be solely
responsible for such tax liability as may be recognized by Southwestern or the
Separate Account as a result of sales or other dispositions of assets of the
Separate Account as a part of or in contemplation of the transactions
contemplated by this Agreement.

6. Separate Account Representations and Warranties. Southwestern and the
Separate Account hereby represents, warrants and agrees as follows:

6.1 Good Standing. The Separate Account is a separate account duly
organized and validly existing under the Texas Insurance Laws; Southwestern is
an insurance company duly organized and existing under the laws of Texas with
the power to own all of its properties and assets, including those allocated to
the Separate Account, and to carry on its business as it is now conducted.
Southwestern, on its own behalf and on behalf of the Separate Account, has the
power to enter into this Agreement and carry out their respective obligations
hereunder.

<PAGE>

6.2 Registration under 1933 and 1940 Acts. The Separate Account is duly
registered with the Commission as an open-end management investment company
under the 1940 Act and the VAF N-3 is in full force and effect and conforms in
all material respects to the requirements of the 1933 Act and the 1940 Act.

6.3 Lawful Sale of Contracts. All of the Contracts have been offered and
sold in compliance in all material respects with applicable requirements of the
federal and state securities laws. Sales of Contracts have been registered in
all jurisdictions in which they are required to be registered and all such
registrations, together with any periodic reports or supplemental filings
required to be made in any such jurisdiction are complete and current in all
material respects, all fees required to be paid have been paid and the Separate
Account is not subject to any stop order.

6.4 Year-End Financials. The audited financial statements of the Separate
Account as of and for the year ended December 31, 1993 furnished to Scudder Fund
prior to the execution of this Agreement fairly present the financial condition
of the Separate Account as of said date in conformity with generally accepted
accounting principles consistently applied.

6.5 Limited Review Financials. The Separate Account will furnish to Scudder
Fund on the Valuation Date an unaudited statement of assets and liabilities, the
statement of portfolio investments and the related statements of operations and
statement of changes in net assets for the period commencing on January 1, 1993
and ending on the Valuation Date. In addition, the Separate Account will provide
to Scudder Fund unaudited statements of assets and liabilities and the related
statements of operation and statement of changes in net assets for each
semi-annual period occurring between December 31, 1993 and the Closing Date.

Such semi-annual financial statements will present fairly in all material
respects the financial condition and portfolio investments of the Separate
Account and the results of its operations as of and for the period ending on the
date of such statements in conformity with generally accepted accounting
principles consistently applied. Such unaudited financial statements shall be
certified by the Treasurer of Southwestern as complying with the requirements of
the preceding sentence.

6.6 No Material Litigation. There are no legal, administrative or other
proceedings pending, or to its knowledge, threatened against the Separate
Account which would materially and adversely affect its financial condition or
its ability to perform its obligations under this Agreement.

6.7 Board of Managers Approval. The execution and delivery of this
Agreement and the consummation of the transactions

<PAGE>

contemplated herein have been duly authorized by the Separate Account's Board of
Managers by vote taken at a meeting of such Board duly called and held on
October 27, 1993 and this Agreement constitutes a valid and legally binding
obligation of the Separate Account and Southwestern in accordance with its
terms.

6.8 No Material Contracts. The Separate Account is not, and the execution,
delivery and performance of this Agreement by the Separate Account will not
result, in a material violation of any provision of the Rules and Regulations of
the Separate Account, as each may be amended, or of any agreement, indenture,
instrument, contract, lease or other undertaking, order, decree, statute or
regulation to which the Separate Account is a party or by which it is bound.

6.9 Good and Marketable Title. On the Closing Date, Southwestern will have
good and marketable title to the assets allocated to the Separate Account, free
and clear of all liens, mortgages, pledges, encumbrances, charges, claims and
equities whatsoever, and full right, power and authority to sell, assign,
transfer and deliver such assets and shall deliver such assets to Growth
Portfolio. Upon delivery of such assets, Growth Portfolio will receive good and
marketable title to such assets, free and clear of all liens, mortgages,
pledges, encumbrances, charges, claims and equities. Except as otherwise
indicated in Exhibit 6.9, none of the securities to be transferred by the
Separate Account pursuant to Section 2.2 of this Agreement will constitute
"restricted securities" within the meaning of Rule 144 under the 1933 Act or
will be subject to any contractual provisions restricting their transferability.

6.10 Books and Records. The Separate Account has maintained all records
required under Section 31 of the 1940 Act and rules thereunder, and it is not
acquiring the Scudder Shares for the purpose of making any distribution of the
Scudder Shares except to the extent that the issuance of units of participation
in the Separate Account pursuant to the Contracts might be deemed to constitute
such a distribution.

6.11 VAF N-3 Not Misleading. The VAF N-3 (copies of which have been
delivered to Scudder Fund) conforms in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and does not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading.

6.12 Scudder N-14. In connection with the Scudder N-14, the Separate
Account will cooperate with Scudder Fund and will furnish to Scudder Fund the
information relating to the Separate Account required by applicable laws and
regulations to be set forth in the Scudder N-14 (including the prospectus and

<PAGE>

statement of additional information). At the time the Scudder N-14 becomes
effective, the Scudder N-14, insofar as it relates to the Separate Account: (i)
will comply in all material respects with the provisions of the 1933 Act and the
rules and regulations thereunder, and (ii) will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and at the
time of the meeting of Contract holders referred to in Section 3.2 of this
Agreement and at the Closing, the prospectus and statement of additional
information included in the Scudder N-14, as amended or supplemented, insofar as
they relate to the Separate Account, will not contain an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

6.13 Tax Diversification. The Separate Account has satisfied, and will
continue to satisfy, the diversification requirements of Section 817(h) under
the Code and the underlying Treasury regulations for all periods since its date
of organization up to and including the Closing Date of the asset transfer
described herein.

7. Representations and Warranties of Scudder Fund.

Scudder Fund hereby represents, warrants and agrees as follows:

7.1 Good Standing. Scudder Fund is a duly organized and validly existing
Massachusetts business trust, authorized to issue an unlimited number of shares
of beneficial interest designated as the Growth Portfolio with power to own all
of its properties and assets and to carry on its business as now conducted.
Scudder Fund has the power to enter into this Agreement on behalf of the Growth
Portfolio, and to carry out its obligations hereunder.

7.2 Registration under 1933 and 1940 Acts. Scudder Fund is duly registered
as an open-end management series investment company and the Scudder N-1A, which
describes the Growth Portfolio, is in full force and effect and conforms in all
material respects to the requirements of the 1933 Act and the 1940 Act. Growth
Portfolio has elected to qualify and has qualified as a regulated investment
company under Section 851 of the Code and intends to continue to qualify as a
regulated investment company for its taxable year which includes the Closing
Date.

7.3 Lawful Sale of Shares. The Scudder Shares to be issued pursuant to
Section 2.1 of this Agreement are duly authorized and, upon the Closing, will be
validly issued and fully paid and non-assessable and conform in all material
respects to the description thereof contained in the Scudder N-14. The sale of
the Scudder Shares pursuant to Paragraph 2.1 of this Agreement will be duly

<PAGE>
registered under the 1933 Act by the Scudder N-14 and in all jurisdictions in
which owners of Contracts and Participants reside; all reports required to be
filed and fees required to be paid in connection therewith shall have been duly
and timely filed and paid; and no stop order shall have been entered in
connection therewith.

7.4 Year-End Financials. The audited statement of assets and liabilities
and the schedule of portfolio investments and the related statements of
operations and changes in net assets of Growth Portfolio dated December 31,
1993, furnished to the Separate Account fairly present the financial condition
of Growth Portfolio as of said date in conformity with generally accepted
accounting principles consistently applied.

7.5 Unaudited Semiannual Financials. Scudder Fund shall furnish to the
Separate Account unaudited statements of portfolio investments for semi-annual
periods of Growth Portfolio occurring between the date following the date
specified in Section 7.4 above and the Closing Date. These financial statements
will present fairly the financial condition and portfolio investments of Growth
Portfolio and the results of its operations as of and for the period ending on
the dates of such statements in conformity with generally accepted accounting
principles consistently applied. Such unaudited financial statements shall be
certified by the Treasurer of Scudder Fund as complying with the requirements of
the preceding sentence.

7.6 No Contingent Liabilities. There are no contingent liabilities of
Growth Portfolio not disclosed in financial statements delivered pursuant to
Section 7.4 and 7.5 and further there are no legal, administrative or other
proceedings pending, or to the knowledge of Scudder Fund threatened, against
Growth Portfolio which would materially affect its financial condition or
conduct of business.

7.7 Board of Trustees Approval. The execution and delivery of this
Agreement and the consummation of the transactions contemplated herein, have
been duly authorized by the Board of Trustees of Scudder Fund by vote taken at a
meeting of such Board duly called and held on February 11, 1994, and this
Agreement constitutes a valid and legally binding obligation of each of Scudder
Fund and Growth Portfolio in accordance with its terms.

7.8 No Material Adverse Change. From the date of this Agreement through the
Closing Date, there shall not have been:

(1) any change in the business, results of operations, assets or
financial condition or the manner of conducting the business
of Growth Portfolio, (other than changes in the ordinary
course of its business, including without

<PAGE>

limitation dividends and distributions in the ordinary
course and changes in the net asset value per share), which
has had an adverse material effect on such business, results
of operations, assets or financial condition, except in all
instances as set forth in financial statements required to
be provided to the Separate Account under this Agreement;

(2) any loss (whether or not covered by insurance) suffered by
the Growth Portfolio materially and adversely affecting any
asset of Growth Portfolio, other than depreciation of
securities;

(3) issued by Scudder Fund to any person, any option to purchase
or other right to acquire Scudder Shares (other than in the
ordinary course of Scudder Fund's business as an open-end
management investment company);

(4) any indebtedness incurred by Growth Portfolio for borrowed
money or any commitment to borrow money entered into by
Growth Portfolio except as permitted in the Scudder N-1A and
disclosed in financial statements required to be provided
under this Agreement;

(5) any amendment to the Declaration of Trust or Bylaws, as each
may be amended, of Scudder Fund except as disclosed in
writing to the Separate Account and not objected thereto;

(6) any grant or imposition of any lien, claim, charge or
encumbrance upon any asset of Growth Portfolio except as
permitted in the Scudder N-1A and as disclosed in financial
statements required to be provided under this Agreement.

7.9 No Material Contracts. Scudder Fund is not, and the execution, delivery
and performance of this Agreement will not result, in a material violation of
any provision of the Declaration of Trust or Bylaws, as each may be amended, of
Scudder Fund or of any agreement, indenture, instrument, contract, lease or
other undertaking, order, decree, statute or regulation to which Scudder Fund is
a party or by which it is bound.

7.10 Taxes and Related Filings. Except where failure to do so would not
have a material adverse effect on the Growth Portfolio, (i) Scudder Fund has
filed or will file (or has obtained valid extensions of filing dates for) all
required Federal, state and local tax returns for all taxable years through the
taxable year

<PAGE>

ended December 31, 1993 and no such filings are currently being contested by the
Internal Revenue Service or state or local taxing authority; and (ii) all
Federal, state and local income, franchise, property sales, employment or other
taxes payable pursuant to such returns have been paid or will be paid, so far as
due. The Growth Portfolio has qualified, and will qualify, as a regulated
investment company under the Code with respect to each taxable year of the
Growth Portfolio beginning on or prior to the Closing Date.

7.11 Contract Owners. Growth Portfolio shall not pay any expenses of any
owner of a Contract or Participant arising out of or in connection with the
transactions contemplated by this Agreement and Growth Portfolio does not own,
directly or indirectly, nor has it owned during the past five years, directly or
indirectly, any interest in or under a Contract.

7.12 Scudder N-1A Not Misleading. The Scudder N-1A (copies of which have
been delivered to the Separate Account) conforms in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and does not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading.

7.13 Scudder N-14. In connection with the Scudder N-14, Scudder Fund will
cooperate with the Separate Account and will furnish to the Separate Account the
information relating to the Scudder Fund, Growth Portfolio or the Scudder Shares
required by applicable laws and regulations to be set forth in the Scudder N-14
(including the prospectus and statement of additional information). At the time
the Scudder N-14 becomes effective, the Scudder N-14, insofar as it relates to
Scudder Fund, Growth Portfolio or the Scudder Shares: (i) will comply in all
material respects with the provisions of the 1933 Act and the rules and
regulations thereunder, and (ii) will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
meeting of Contract holders referred to in Section 3.2 of this Agreement and at
the Closing, the prospectus and statement of additional information included in
the Scudder N-14, as amended or supplemented, insofar as they relate to Scudder
Fund, Growth Portfolio or the Scudder Shares, will not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.

8. Conditions Precedent to Closing.

The obligations of the parties hereto shall be conditioned on the
following:

<PAGE>

8.1 Internal Revenue Code. The obligations of the Separate Account,
Southwestern and Scudder Fund under this Agreement shall be subject to the
receipt by the Separate Account and Southwestern and Scudder Fund on or before
the Closing Date, of an opinion of counsel in all respects satisfactory to the
Separate Account, Southwestern and Scudder Fund to the effect that for Federal
income tax purposes, subject to certain assumptions:

(1) no gain or loss will be recognized by the
Separate Account, Southwestern or the Growth
Portfolio as a result of the transfer of the
assets of the Separate Account to Growth
Portfolio in exchange for Scudder Shares, as
provided in this Agreement; and

(2) no gain or loss will be recognized by the
owners of Contracts or the Participants by
reason of the transaction;

(3) the tax basis of the assets received by the
Growth portfolio in exchange for Scudder
Shares pursuant to this Agreement will, in
each instance, be equal to the fair market
value of the assets on the Closing Date;

(4) the Growth Portfolio's holding period for
the assets received from the Separate
Account pursuant to this Agreement will, in
each instance, commence on the day following
the Closing Date; and

(5) the transactions entered into pursuant to
this Agreement will not adversely affect the
Growth Portfolio or the Separate Account
with respect to the diversification
requirements of Section 817(h) of the Code.

8.2 Contract Owner Approvals. Consummation of the transactions
contemplated under this Agreement shall be subject to the approval of this
Agreement and such contemplated transactions (i) by the owners of Contracts in
accordance with the Texas Insurance Laws, the 1940 Act, and the Rules and
Regulations of the Separate Account; and (ii) in accordance with applicable law
and the terms and conditions of the Contracts.

8.3 Pending or Threatened Proceedings. On the Closing Date, no action,
suit or other proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
damages or other relief in connection with, this Agreement or the transactions
contemplated herein.

<PAGE>

8.4 Registration Statement. The Scudder N-14 shall have become
effective under the 1933 Act; no stop orders suspending the effectiveness of
such Scudder N-14 shall have been issued; and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.

8.5 Regulatory Approvals. Southwestern and the Separate Account shall
have received orders from the Commission providing such exemptions as they and
their counsel reasonably deem necessary, and shall have received all regulatory
approvals and clearances and fulfilled all regulatory waiting periods required,
for the consummation of the transactions contemplated by this Agreement and the
operation of the Separate Account as a unit investment trust following the
Closing.

8.6 Comfort Letter. Growth Portfolio and the Separate Account shall
receive on the Closing Date comfort letters from auditors for the Separate
Account and Scudder Fund, dated as of the Closing Date, as to certain financial
and accounting matters in the form mutually agreed upon.

8.7 State Securities Laws. The parties shall have received all permits
and other authorizations necessary under state securities laws to consummate the
transactions contemplated herein.

8.8 Performance of Covenants. Each party shall have performed and
complied in all material respects with each of the agreements and covenants
required by this Agreement to be performed or complied with by each such party
prior to or at the Valuation Date and the Closing Date.

8.9 Representations and Warranties. The representations and warranties
made by each of the parties to this Agreement shall be true and correct as of
the Closing Date.

8.10 Delivery of Legal Opinions. The opinions of counsel referred to
in Section 4.2 shall have been delivered.

8.11 Participation Agreement. The Separate Account shall have executed
and delivered to Scudder Fund a Participation Agreement and such other
agreements in form acceptable to Scudder Fund that will ensure compliance by
Scudder Fund with the conditions of the exemptive order referred to above.

8.12 Due Diligence. Scudder Fund shall have the opportunity to have
its officers and agents review the records of the Separate Account on such terms
as the parties agree, unless the parties shall otherwise agree. In addition,
Scudder Fund shall have the opportunity to have its officers and agents review
the portfolio securities of the Separate Account and identify which portfolio
securities of the Separate Account should be divested consistent

<PAGE>

with the investment policy of the Growth Portfolio. Subject to, and consistent
with, Section 3.3, the Separate Account agrees to cooperate fully with the
officers and agents of Scudder Fund in buying and selling portfolio securities
in accordance with the recommendations of Scudder Fund or its officers and
agents; provided, however, that the Separate Account shall be under no
obligation to sell any portfolio securities at the recommendation of Scudder
Fund or its agents or officers until the later of (i) 10 days prior to the
Closing Date, or (ii) the date that owners of Contracts approve the transactions
contemplated by this Agreement and the Separate Account receives evidence
reasonably satisfactory to it that all other conditions precedent to the
consummation of the transactions contemplated by this Agreement have been or
will be satisfied by the Closing Date. Subject to the limitations set forth in
Section 3.3, the Separate Account shall use all commercially reasonable efforts
to ensure that its securities portfolio shall be in such form as is consistent
with the investment policy of the Growth Portfolio by the Delivery Date. The
Separate Account and Southwestern agree that any expenses, including
commissions, incurred in connection with the purchase and sale of its portfolio
securities prior to the Closing and effected by reason of this Section 8.12 are
solely the obligation of Southwestern.

9. Indemnification.

Southwestern hereby agrees to indemnify and hold harmless Scudder Fund, its
directors, officers and the Growth Portfolio against, and to advance any and all
expenses reasonably incurred by them in connection with, any and all claims made
against them, and liabilities arising out of claims made against them, on or
after the Closing to the extent such claims result from a breach of this
Agreement by Southwestern or the Separate Account. Consistent with the
provisions of Section 16, Scudder Fund, on behalf of the Growth Portfolio,
hereby agrees to indemnify and hold harmless Southwestern, the Separate Account
and their respective directors, managers and officers against, and to advance
any and all expenses reasonably incurred by them in connection with, any and all
claims made against them, and liabilities arising out of claims made against
them, on or after the Closing to the extent such claims result from a breach of
this Agreement by Scudder Fund or Growth Portfolio.

10. Addresses.

All notices required or permitted to be given under this Agreement shall be
given in writing to Variable Annuity Fund I of Southwestern Life, 500 N. Akard,
Dallas, Texas 75201-3320 (Attention: Al Kennon, Jr., Secretary), with a copy to
Cynthia W. Young, Esq., Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville,
Kentucky 40202, and to Southwestern Life Insurance Company, 500 North Akard
Street, Dallas, Texas 75201 (Attention: Daniel B. Gail, Esq.) and to Scudder
Variable Life Investment Fund, Two International Place, Boston, MA 02110

<PAGE>

(Attention: Kathryn L. Quirk, Esq.) with a copy to Sheldon A. Jones, Esq.,
Dechert Price & Rhoads, Ten Post Office Square, Boston, MA 02109 or at such
other place as shall be specified in written notice given by any party to the
other parties to this Agreement and shall be validly given if mailed by
first-class mail, postage prepaid.

11. Termination.

11.1 This Agreement may be terminated by any party hereto upon the giving
of written notice to all other parties, if: (a) any of the representations,
warranties or conditions specified in Sections 6, 7, and 8 hereof have not been
performed or are not otherwise satisfied on or before September 30, 1995; or (b)
in the event that a disruption in trading referred to in Section 2.3 shall have
occurred and trading and reporting shall not have been restored in the judgment
of all of the parties hereto on or before the end of the third Business Day
following such event. In addition, this Agreement will automatically terminate,
without any action by any party, on December 31, 1995 if the Closing Date has
not occurred prior to such date.

In the event of termination of this Agreement pursuant to this Section 11,
no party hereto (nor its officers, Managers, Trustees or shareholders or
Participants) shall have any liability to any other party.

12. Exhibits.

All exhibits shall be considered as part of this Agreement.

13. Miscellaneous.

This Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. It shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts. The
Separate Account and Scudder Fund represent and warrant to each other that,
except as disclosed in writing executed and delivered prior to the execution of
this Agreement, there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein. The Separate Account,
Southwestern and Scudder Fund agree that no party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties as to the subject matter hereof. The
representations, warranties and covenants contained in this Agreement or in any
document delivered pursuant hereto or in connection herewith shall survive the
consummation of the transactions contemplated hereunder. The Section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. This Agreement shall
be executed in any number of counterparts, each of which shall be deemed an
16

<PAGE>

original. Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement. Whenever used herein, the use of any gender
shall include all genders.

14. Publicity.

Any announcements or similar publicity with respect to this Agreement or
the transactions contemplated herein will be made at such time and in such
manner as Southwestern and Scudder Fund shall agree, provided that nothing
herein will prevent either the Separate Account, Scudder Fund or Southwestern
from making such public announcements as may be considered advisable by their
respective counsel in order to satisfy legal and contractual obligations in such
regard, provided that both Southwestern and Scudder Fund receive a copy of all
such announcements.

15. Amendments.

At any time prior to or after approval of this Agreement by the owners of
Contracts (i) the parties hereto may, by written agreement and without
shareholder approval, amend any of the provisions of this Agreement, and (ii)
any party may waive without such approval any default by any other party or the
failure to satisfy any of the conditions to its obligations (such waiver to be
in writing). The failure of either party hereto to enforce at any time any of
the provisions of this Agreement shall in no way be construed to be a waiver of
any such provision, nor in any way to affect the validity of this Agreement or
any part hereof or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.

16. Massachusetts Business Trust.

References in this Agreement to Scudder Fund mean and refer to the
Trustees, from time to time serving under its Declaration of Trust on file with
the Secretary of the Commonwealth of Massachusetts, as the same may be amended
from time to time, pursuant to which Scudder Fund conducts its business. It is
expressly agreed that the obligations of Scudder Fund hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of such Trust personally, but bind only the trust property of Scudder
Fund, as provided in said Declaration of Trust. Moreover, no series of Scudder
Fund other than the Growth Portfolio is responsible for the obligations of the
Growth Portfolio. The execution and delivery of this Agreement has been
authorized by the Trustees and signed by an authorized officer of Scudder Fund,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have

<PAGE>

been made by any of them but shall bind only the trust property of Scudder Fund
as provided in such Declaration of Trust.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and its seal affixed hereto by their officers thereunto duly
authorized, as of the day and year first above written.

SOUTHWESTERN LIFE INSURANCE COMPANY
(on its own behalf and on behalf of
ATTEST: Variable Annuity Fund I of
Southwestern Life)

/s/Daniel B. Gail By: /s/ James R. Kerber
- -------------------------- -------------------------------
Secretary Title: President and CEO

ATTEST: SCUDDER VARIABLE LIFE INVESTMENT
FUND (on behalf of its Capital
Growth Portfolio)

/s/Thomas F. McDonough By: /s/ David B. Watts
- -------------------------- -------------------------------
Secretary Title: President

<PAGE>

EXHIBIT 1

Definitions

a. The term "Agreement" shall mean this Asset Transfer Agreement between
Southwestern, on its own behalf and on behalf of the Separate Account and
Scudder Fund, on its own behalf and on behalf of the Growth Portfolio.

b. The term "Southwestern" shall mean Southwestern Life Insurance Company.

c. The term "Business Day" shall mean any day that is not a Saturday or
Sunday that the New York Stock Exchange is open.

d. The term "Closing" shall mean the closing of the transaction
contemplated by this Agreement.

e. The term "Closing Date" shall mean the fifth business day after the
first date as of which the conditions set out in Sections 8.2, 8.5 and 8.7 shall
have been satisfied, or such other date as may be agreed by the parties on which
the Closing is to take place.

f. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended.

g. The term "Commission" shall mean the Securities and Exchange Commission.

h. The term "Contract" shall mean a variable annuity contract designated by
Southwestern as contracts for which reserves shall be maintained in the Separate
Account.

i. The term "Custodian" shall mean the custodian of the domestic assets of
the Growth Portfolio, currently State Street Bank and Trust Company.

j. The term "Delivery Date" shall mean no later than three (3) Business
Days preceding the Valuation Date.

k. The term "1933 Act" shall mean the Securities Act of 1933.

l. The term "1934 Act" shall mean the Securities Exchange Act of 1934.

m. The term "1940 Act" shall mean the Investment Company Act of 1940.

n. The term "NYSE" shall mean the New York Stock Exchange.

<PAGE>

o. The term "Close of Trading on the NYSE" shall mean the close of regular
trading, which is currently 4:00 p.m. Eastern time.

p. The term "Participants" shall mean the individuals who have the right to
instruct the owners of Contracts that are group variable annuity contracts as to
how interests in such Contracts shall be voted.

q. The term "Scudder Fund" shall mean the Scudder Variable Life Investment
Fund, a Massachusetts business trust.

r. The term "Scudder N-14" shall mean the registration statement on Form
N-14 that describes the transactions contemplated by this Agreement and the
Scudder Shares, and that registers pursuant to the 1933 Act the securities to be
issued and sold by Scudder and the Separate Account at the Closing, and that
includes the combined prospectus and proxy statement furnished to the owners of
Contracts and Participants in connection with this transaction.

s. The term "Scudder N-1A" shall mean the currently effective registration
statement on Form N-1A of Scudder Fund with respect to the Growth Portfolio.

t. The term "Scudder Shares" shall mean the voting shares representing
interests in the Growth Portfolio to be issued at Closing.

u. The term "Growth Portfolio" shall mean the Capital Growth Portfolio of
Scudder Fund.

v. The term "Securities List" shall mean the list of those securities owned
by the Separate Account on the Delivery Date.

w. The term "Texas Insurance Laws" shall mean the Insurance Code of Texas
and the rules and regulations promulgated thereunder.

x. The term "the Separate Account" shall mean Variable Annuity Fund I of
Southwestern Life, a separate account established by Southwestern pursuant to
the Insurance Code of Texas.

y. The term "VAF N-3" shall mean the currently effective registration
statement on Form N-3 of the Separate Account.

z. The term "Valuation Date" shall mean the next Business Day preceding the
Closing Date.

<PAGE>
Exhibit 2.4

Amended and Restated Rules and Regulations of
Variable Annuity Fund I of Southwestern Life

VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

DALLAS, TEXAS

RULES AND REGULATIONS
(as amended and restated ____________, 1995)

ARTICLE I

GENERAL

Section 1. Name. The name of this separate account shall be Variable
Annuity Fund I of Southwestern Life ("Fund"). The Fund was established in 1967
in accordance with the provisions of Chapter 3, Article 3.72 of the Texas
Insurance Code (the "Code") as then in effect, and continues in existence
pursuant to Article 3.75 of the Code.

Section 2. Offices. The principal office of the Fund shall be at the
offices of Southwestern Life Insurance Company ("Southwestern"), 500 North Akard
Street, Dallas, Texas 75201.

Section 3. Purposes. The purposes of the Fund are to provide, pursuant to
the applicable provisions of the Code, for a separate account of Southwestern
for the assets held and applied exclusively for the benefit of owners or
beneficiaries of the variable annuity contracts designated by Southwestern as
contracts ("Contracts") for which reserves shall be maintained in the Fund, and
to pay contractual obligations relating to the assets and investment performance
of the Fund under the Contracts to their owners or beneficiaries.

Section 4. Fund Investments. The Fund's assets shall consist exclusively of
investments in one or more open-end management investment companies registered
as such under the Investment Company Act of 1940 ("1940 Act"), or one or more
separate investment series thereof ("Underlying Fund(s)") as determined by
Southwestern. No such investment shall be made except in Underlying Funds that
satisfy the requirements of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code") pertaining to investments underlying variable annuity
contracts. Currently, the Underlying Fund in which the Fund shall invest
exclusively in shares of the Capital Growth Portfolio ("Growth Portfolio") of
Scudder Variable Life Investment Fund ("Scudder Fund"). Should shares of the
Growth Portfolio become unavailable for investment by the Fund, or if
Southwestern determines that investment in the Growth Portfolio would be
inappropriate in view of the purposes of the Contracts, Southwestern may, in its
discretion, substitute shares of a different Underlying Fund for shares of the
Growth Portfolio held or to be acquired by the Fund. No such substitution may
take place unless it is permitted by the Securities and Exchange Commission
("Commission") and under such conditions as the Commission may impose.

<PAGE>

ARTICLE II

VARIABLE ANNUITY CONTRACT OWNERS

Section l. Contract Owner Meetings. Contract Owner meetings generally shall
not be held except as may be required by law, particularly, as required under
the 1940 Act.

Section 2. Voting Rights of Shareholders of the Underlying Fund.
Southwestern is the owner of record of all shares of the Growth Portfolio (and
will be the record owner of all of the Fund's shares in any other Underlying
Fund allocated to the Fund), and as such is entitled to exercise voting rights
pertaining to such shares on any matter that is submitted to shareholder vote by
the Scudder Fund. However, for so long as the staff of the Commission interprets
the federal securities laws as requiring it to do so, Southwestern will provide
Contract Owners (and participants under a group Contract, to the extent
permitted under the terms of any employee benefit plan that is the owner of such
Contract), with the opportunity to instruct Southwestern as to the voting of
such shares attributable to the Contract of such participants' interest therein.

Section 3. Determination for Voting Instructions. To be entitled to provide
voting instructions to Southwestern, a person must be a Contract Owner on the
record date. During the accumulation period, each Contract Owner may give
instructions for voting the number of shares of the Underlying Fund equal to (i)
the Contract value divided by (ii) the net asset value of one share of the
Underlying Fund, both determined as of the record date, including fractions
thereof, equal to the number of variable annuity accumulation units attributable
to the contract. During the annuity period, each Contract Owner may give
instructions for voting the number of shares of the Underlying Fund, including
fractions thereof, equal to (i) the amount of the assets maintained in the Fund
as reserves to meet the annuity obligations under the contract divided by (ii)
the net asset value of one share of the Growth Portfolio, both determined as of
the record date.

Southwestern will vote the shares of the Underlying Fund for which it has
not received any voting instructions on a proposal for and against such proposal
in the same proportion as in the case of shares for which it has received
instructions.

Each Participant under a group contract will have the right to instruct the
Contract Owner with respect to amounts allocated to such Participant under the
terms of the group contract. Contract Owners shall forward instructions that
have been received from Participants. Instructions for shares with regard to
which Participants where entitled to instruct the Contract Owner, but for which
the Contract Owner has received no instructions, shall be provided by the
Contract Owner for or against each proposal to be voted upon in the same
proportion as votes for which instructions have been received.

2
<PAGE>

contracts are persons other than the annuitants. Annuitants covered by
individual contracts issued in connection with qualified employee retirement or
profit-sharing plans described in Section 401 of the Internal Revenue Code shall
be given the right to instruct the owners with respect to shares attributable to
their contributions to the plans, if any, and to the extent authorized by the
terms of the plans with respect to any additional shares under such contracts.
The owners of such contracts shall provide instructions with respect to which
instructions from annuitants have been received in accordance with such
instructions; votes applicable to individual contracts with regard to which
annuitants were entitled to instruct the Contract Owner, but for which the
Contract Owner has received no instructions, shall be provided by the Contract
Owner for or against each proposal to be voted upon in the same proportion as
votes for which instructions have been received.

Neither the Fund nor Southwestern is under a duty to inquire as to the
instructions received or the authority of variable annuity Contract Owners to
cast votes. Except as the Fund or Southwestern has actual knowledge to the
contrary, the votes cast by Contract Owners will be considered valid and
effective as they affect the Fund, Southwestern, and any others having voting
rights with respect to the Fund.

Section 4. Determination of Voting Rights. In the event that a meeting of
Contract Owners shall be held as required by law, a record date shall be set and
a notice stating the time, date, place of meeting and the purpose or purposes
for which the meeting is called, shall be given to Contract Owners as required
by law. Unless otherwise required by law, to be entitled to vote, a person must
be a Contract Owner on the record date. During the accumulation period, each
Contract Owner may cast the number of votes, including fractions thereof, equal
to the number of variable annuity accumulation units attributable to the
contract. During the annuity period, each Contract Owner may cast the number of
votes, including fractions thereof, equal to (i) the amount of the assets
maintained in the Fund to meet the annuity obligations under the contract
divided by (ii) the value of such an accumulation unit.

Each Participant under a group contract will have the right to instruct the
Contract Owner with respect to amounts allocated to such participant under the
terms of the group contract. Contract Owners shall cast the votes for which
instructions have been received from Participants in accordance with such
instructions. Votes with regard to which participants were entitled to instruct
the Contract Owner, but for which the Contract Owner has received no
instructions, shall be cast by the Contract Owner for or against each proposal
to be voted upon in the same proportion as votes for which instructions have
been received.

Annuitants under individual contracts issued in connection with plans
established under the Self-Employed Individuals Tax Retirement Act of 1962, as
amended, will have the right to instruct the owners of such contracts with
respect to all votes attributable to such contracts, if the owners of such
contracts are persons other than the annuitants. Annuitants covered by
individual contracts issued in connection with qualified employee retirement or
profit-sharing plans described in Section 401 of the Internal Revenue Code shall
be given the right to instruct the owners with respect to votes attributable to
their contributions to the plans, if any, and to the extent authorized by the
terms of the plans with respect to any additional votes under such contracts.

3
<PAGE>

The owners of such contracts shall cast the votes with respect to which
instructions from annuitants have been received in accordance with such
instructions; votes applicable to individual contracts with regard to which
annuitants were entitled to instruct the Contract Owner, but for which the
Contract Owner has received no instructions, shall be cast by the Contract Owner
for or against each proposal to be voted upon in the same proportion as votes
for which instructions have been received.

The number of Contract Owners constituting a quorum, the number of votes
required at such meeting and any other matters relating to meetings of Contract
Owners shall be as prescribed by law.

Except as may otherwise be required by law, neither the Fund nor
Southwestern is under a duty to inquire as to the instructions received or the
authority of variable annuity Contract Owners to cast votes. Further, except as
may otherwise be required by law, or except as the Fund or Southwestern has
actual knowledge to the contrary, the votes cast by Contract Owners will be
considered valid and effective as they affect the fund, Southwestern, and any
others having voting rights with respect to the Fund.

ARTICLE III

ADMINISTRATION

Section 1. Administration of the Fund. The Fund shall not have a Board of
Managers. Southwestern shall be responsible for, and shall bear the costs of,
administering the Fund and the Contracts except as provided below.

Section 2. Charges Against the Fund. The assets of the Fund shall be
chargeable by Southwestern for its mortality and expense undertakings at the
rates prescribed in the Contracts. In addition, the Fund shall be charged for
the actual costs of providing auditing services to it, except that Southwestern
shall not charge the Fund for any portion of such fees as may exceed 0.20% of
the average daily net assets of the Fund.

ARTICLE IV

AMENDMENTS

These Rules and Regulations, subject to applicable law, may be altered,
amended or repealed by Southwestern.

4
<PAGE>

Exhibit 4.2(3)
Opinion of Counsel for Separate Account

Opinion of the General Counsel
of Southwestern Life Insurance Company

This opinion is being provided to you by the undersigned, as General
Counsel of Southwestern Life Insurance Company ("Southwestern"), in connection
with the transactions contemplated by that certain Asset Transfer Agreement
("Agreement") between Southwestern, on its own behalf and on behalf of Variable
Annuity Fund I of Southwestern Life, and Scudder Variable Life Investment Fund,
on behalf of its Capital Growth Portfolio. Capitalized terms used herein without
definition shall have the meanings given them in the Agreement.

I (or attorneys under my supervision) have examined originals or copies,
certified or otherwise identified to my satisfaction, of such certificates of
public officials, corporate documents, records and other certificates and
instruments and have made such other investigations as I have deemed necessary
in connection with the opinions hereinafter set forth. As to various questions
of fact material to my opinion, I have relied upon the representations made in
the Agreement and upon certificates of officers of Seller and of public
officials.

For the purposes of this opinion, I have assumed that Scudder Fund, acting
on behalf of the Growth Portfolio, and each other entity that is a party to the
Agreement, other than Southwestern and the Separate Account, has the power and
authority to enter into and perform all of its respective obligations under the
Agreement and the due execution and delivery by, and valid and binding effect
upon, Scudder Fund, on behalf of the Growth Portfolio. I have also assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with the originals of all documents submitted to
us as copies.

<PAGE>

Based on the foregoing, and subject to the qualifications set forth below,
I am of the opinion that:

1. The Separate Account is an account duly established and maintained by
Southwestern pursuant to the law of Texas, under which income, gains
and losses, whether or not realized, from assets allocated to such
account, are, in accordance with the Contracts, credited to or charged
against such account without regard to other income, gains or losses
of Southwestern. The assets allocated to the Separate Account are
equal to the reserves and other contract liabilities with respect to
that account are not chargeable with liabilities arising out of any
other business of Southwestern.

2. The Separate Account has the power to carry on its business as now
conducted and to enter into the Agreement and carry out its
obligations thereunder.

3. Southwestern is an insurance company duly organized and existing under
the laws of Texas, with the power to carry on its business as it is
now conducted.

4. Southwestern, on its own behalf and on behalf of the Separate Account,
has the power to enter into the Agreement and carry out its
obligations hereunder.

5. The execution, delivery and performance of the Agreement by and on
behalf of Southwestern and the Separate Account, and the consummation
of the transactions contemplated by the Agreement, have been duly
authorized by all requisite action, and the Agreement represents the
binding obligation of Southwestern and the Separate Account.

6. The execution and delivery of the Agreement by and on behalf of
Southwestern and the Separate Account did not, and the consummation of
the transactions contemplated thereby will not, violate the Articles
of Incorporation or Bylaws of Southwestern, as each may be amended, or
any provision of any agreement known to such counsel to which
Southwestern is a party or by which it is bound or result in the
acceleration of any obligation or the imposition of any penalty under
any agreement, judgment or decree to which Southwestern or the
Separate Account is a party or by which Southwestern or the Separate
Account is bound.

7. Southwestern and the Separate Account have obtained all consents,
approvals, authorizations and orders of any governmental authority of
the United States or any state that are required for the consummation
by Southwestern and the Separate Account of the transactions
contemplated by the Agreement, and no litigation or administrative
proceedings or investigation of, or before, any court or governmental
body is, to such counsel's knowledge, presently pending or overtly

<PAGE>

threatened as to Southwestern or any of its properties or assets, and
neither the Separate Account nor Southwestern is a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business.

In rendering the foregoing opinions, I have, with your consent, relied on
the opinion Southwestern Life Corporation obtained from Akin, Gump, Strauss,
Hauer & Feld, L.L.P.

The opinions expressed herein are limited to the laws of the State of Texas
and applicable federal laws of the United States. This opinion is given to you
as of the date hereof for your sole benefit in connection with the transactions
contemplated by the Agreement and may not be relied upon in any other context or
by any other person without my express written consent.

<PAGE>

Opinion of Wyatt, Tarrant & Combs,
Outside Counsel of Southwestern Life Insurance Company

We have acted as special counsel to Southwestern Life Insurance Company
("Southwestern") in connection with the transactions contemplated by that
certain Asset Transfer Agreement ("Agreement") between Southwestern, on its own
behalf and on behalf of Variable Annuity Fund I of Southwestern Life, and
Scudder Variable Life Investment Fund, on behalf of its Capital Growth
Portfolio. Capitalized terms used herein without definition shall have the
meanings given them in the Agreement.

In order to render this opinion, we have examined and are relying upon
originals or copies of the following documents: the Agreement; Amendment No.
24 to the Form N-3 of the Separate Account (File Nos. 2-28842, 2-28843, 2-28844
and 811- 1636), as filed with the Commission on May 1, 1995; and the Scudder
N-14 in the form filed with the Commission on ________, 1995. For the purpose of
rendering this opinion, we have examined such questions of law as we have deemed
appropriate. As to questions of fact, we have relied without independent
investigation (unless expressly otherwise indicated herein) on, and we have
assumed the accuracy and validity of, statements and certificates of officers of
Southwestern and the Separate Account, corporate records of Southwestern and the
Separate Account, and certificates of certain public officials.

For the purposes of this opinion, we have assumed that Scudder Fund, acting
on behalf of the Growth Portfolio, and each other entity that is a party to the
Agreement has the corporate power and authority to enter into and perform all of
their respective obligations under the Agreement and the due execution and
delivery by, and valid and binding effect upon, each of the parties to the
Agreement. We have also assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies.

Based upon and subject to the foregoing, and subject to the assumptions,
qualifications and limitations set forth below, we are of the opinion that:

a. The Agreement is enforceable against Southwestern and the
Separate Account according to its terms, except as
enforcement of the indemnification provisions thereof may
be limited by public policy.

b. The Separate Account is registered as an investment
company under the 1940 Act and its registration with

<PAGE>

the Securities and Exchange Commission as such is in
full force and effect.

In our capacity as special counsel to Southwestern in connection with the
transactions contemplated by the Agreement, we have participated in telephone
conferences with certain officers of, and certain accountants for, Southwestern
concerning the preparation of the Scudder N-14.

Although we have made certain inquiries and investigations in connection
with the preparation of the Scudder N-14, the limitations inherent in the role
of outside counsel are such that we cannot and do not assume responsibility for
the accuracy or completeness of the statements made in the Scudder N-14, except
insofar as such statements relate to us. Subject to the foregoing, we hereby
advise you that our work in connection with this matter did not disclose any
information that gave us reason to believe that: (i) insofar as it relates to
Southwestern and the Separate Account, the Scudder N-14 (except the financial
statements and other financial or accounting data included therein, as to which
we do not express any view) were not, as of its effective date, appropriately
responsive in all material respects to the requirements of the Securities Act
and applicable rules and regulations of the Commission thereunder, and (ii)
insofar as it relates to Southwestern and the Separate Account, the Scudder
N-14, at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
regarding Southwestern or the Separate Account or necessary, in light of the
circumstances under which they were made, to make the statements therein
regarding Southwestern not misleading (in each case except as to the financial
statements and other financial or accounting data included therein, as to which
we do not express any view).

Our opinions expressed above are subject to and expressly limited by the
following assumptions, qualifications and limitations:

(1) The Agreement states that it is to be governed by the laws of
Massachusetts. For purposes of the opinions expressed above, we assume, with
your permission, that the Agreement will be governed by the laws of Kentucky
notwithstanding its express terms, and we render no opinion about the laws of
Massachusetts or as to which laws will actually govern the Agreement.

(2) The opinion concerning enforceability of the Agreement in Paragraph a
above is subject to [i] all applicable bankruptcy, insolvency, conservatorship,
receivership, moratorium, reorganization, fraudulent conveyancing, preferential
transfer, or other similar laws of general application and court decisions
affecting the rights of creditors; and [ii] by general principles

<PAGE>

of equity (regardless of whether enforceability is considered in a proceeding in
equity or at law), including concepts of good faith, fair dealing, commercial
reasonableness and unconscionability.

(3) We are members of the bar of the State of Kentucky. Except as
contemplated by Paragraph (1) above, this opinion is limited to matters governed
by the federal law of the United States of America.

(4) We have with your permission relied on the opinion of _____________,
General Counsel of Southwestern, of even date herewith addressed to you. We
believe that we are entitled to rely on that opinion.

(5) This opinion is delivered solely for the information of Scudder Fund,
acting on behalf of the Growth Portfolio. This opinion is not to be used,
circulated, quoted or otherwise referred to by any other party, and no party
other than Scudder Fund, acting on behalf of the Growth Portfolio, is entitled
to rely on it.

Very truly yours,

WYATT, TARRANT & COMBS

<PAGE>
Exhibit 4.2(4)
Opinion of Counsel for Scudder

___________, 1995

Variable Annuity Fund I of
Southwestern Life
500 N. Akard Street
Dallas, Texas 75201-3320

Southwestern Life Insurance Company
500 N. Akard Street
Dallas Texas 75201-3320

Ladies and Gentlemen:

We have acted as counsel for Scudder Variable Life Investment Fund
("Scudder Variable Life"), a Massachusetts business trust organized under the
laws of the Commonwealth of Massachusetts, in connection with the transactions
set forth in the Asset Transfer Agreement for Variable Annuity Fund I of
Southwestern Life (the "Agreement") made as of May ___, 1995 among Scudder
Variable Life on behalf of the Capital Growth Portfolio ("Growth Portfolio"),
Variable Annuity Fund I of Southwestern Life ("VA Fund") and Southwestern Life
Insurance Company ("Southwestern").

In connection therewith, we have examined and relied upon originals or
copies, certified or otherwise identified to our satisfaction, of the documents
relevant to this opinion including (i) the Agreement, (ii) the Declaration of
Trust and By-Laws of Scudder Variable Life as currently in effect, (iii) the
Registration Statement on Form N-14 of Scudder Variable Life (the "Scudder
N-14") filed under the Securities Act of 1933 (the "1933 Act") and relating to
the transactions set forth in the Agreement, (iv) the currently effective
Registration Statement on Form N-1A of Scudder Variable Life (the "Scudder
N-1A"), filed under the Investment Company Act of 1940, as amended, (the "1940
Act") and the 1933 Act, (v) the certified resolutions taken at the meeting of
Scudder Variable Life's Board of Trustees relating to the approval of the
Agreement and authorization to engage in the transactions described therein; and
(vi) certificates of the Secretary of State of the Commonwealth of Massachusetts
that Scudder Variable Life has a legal existence. For purposes of this opinion,
we have accepted, without independent verification, the genuineness of all
signatures (whether original or photostatic) and the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of any and all documents submitted to us as certified or photostatic
copies. We have also relied upon a certificate, insofar as it relates to matters
of facts, dated the date hereof of an officer of Scudder Variable Life
certifying certain matters which form a basis for the opinions expressed herein.
We have accepted the facts material to our opinion as set forth in the Agreement
without independent verification.

Based on the foregoing, we are of the opinion that:

1. Scudder Variable Life is a business trust duly established and validly
existing and in conformity with the laws of the Commonwealth of Massachusetts
and has full power to carry on its business as it is now being conducted;

2. Scudder Variable Life, on its own behalf and on behalf of the Growth
Portfolio, has the power to carry on its business as now conducted and to enter
into the Agreement;

3. All action necessary to make the Agreement binding and enforceable on
Scudder Variable Life according to its terms, and to authorize effectively the
transactions contemplated by the Agreement, have been taken by Scudder Variable
Life; provided however, enforcement of the provisions of the Agreement is
subject to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights, and to general equity principles;

4. The shares of beneficial interest of Scudder Variable Life to be issued
in connection with the transactions set forth in the Agreement (a) are duly
registered under the 1933 Act, subject to the timely filing of a notice covering
such shares pursuant to Rule 24f-2 under the 1940 Act, and the payment of the
fee shown due thereon, (b) are duly authorized and, when issued, will be validly
issued and fully paid and non-assessable by Scudder Variable Life and will
conform in all material respects to the description thereof contained in the
Scudder N-14; and (c) Southwestern and the Separate Account, will acquire good
and marketable title to the shares of beneficial interest of Scudder Variable
Life issued at the Closing, free and clear of any claims, restrictions or
encumbrances of any kind or nature;

5. The execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated thereby will not, violate the
Declaration of Trust or By-Laws of Scudder Variable Life, as each may be
amended, or, to our knowledge, any provision of any agreement to which Scudder
Variable Life is a party or by which it is bound, or result in the acceleration
of any obligation or the imposition of any penalty under any agreement, judgment
or decree to which Scudder Variable Life is a party or by which it is bound;

6. To our knowledge, no consent, approval, authorization or order of any
court or governmental authority of the United States is required for the
consummation by Scudder Variable Life, on behalf of the Growth Portfolio, of the
transactions contemplated by the Agreement, except such as have been obtained
under the Securities Act of 1933, the Securities Exchange Act of 1934, and the
Investment Company of 1940, and such as may be required under state Blue Sky or
securities laws;

7. To our knowledge, all action required to be taken by Scudder Variable
Life, on behalf of the Growth Portfolio, under state Blue Sky or securities laws
to register the shares issued pursuant to the Agreement has been taken;

8. To our knowledge, no litigation or administrative proceedings or
investigation of, or before, any court or governmental body is presently pending
or overtly threatened as to Scudder Variable Life or any of its properties or
assets, and Scudder Variable Life is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body that
materially and adversely affects its business other than as disclosed in the
Scudder N-1A;

9. Scudder Variable Life is registered as an investment company under the
1940 Act and its registration with the Securities and Exchange Commission as
such is in full force and effect; and

10. Only insofar as they relate to Scudder Variable Life, the descriptions
in the proxy statement included in the Scudder N-14, and the Scudder N-14 of
which the proxy statement is a part, of statutes, legal and governmental
proceedings and contracts and other documents are accurate and fairly present
the information required to be shown in all material respects, and such proxy
statement and Scudder N-14 comply as to form with all of the requirements of the
1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act.

In connection with the foregoing opinion, we have participated in
conferences with officers and other representatives of Scudder Variable Life at
which the contents of the Scudder N-14 and Scudder N-1A and related matters were
discussed. Although we are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in any
such document (except to the extent otherwise indicated above), on the basis of
the foregoing conferences we are not aware of any facts which lead us to believe
that any such documents as of the date thereof, as of the date of the meeting of
the VA Fund's shareholders and holders of variable annuity contracts relating to
the Agreement and as of the Closing Date of the reorganization contemplated by
the Agreement, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding Scudder Variable
Life or necessary, in light of the circumstances under which they were made, to
make the statements therein regarding Scudder Variable Life not misleading. We
express no opinion or belief as to the financial statements or other financial
data, or as to the information relating to Scudder Variable Life contained in
the Scudder N-14.

We are members of the Bar of the Commonwealth of Massachusetts and we do
not express any opinion as to matters governed by any laws other than the laws
of the Commonwealth of Massachusetts and the United States of America.

Very truly yours,

/s/Dechert, Price & Rhoads
<PAGE>

Exhibit 6.9

Restricted Securities

None

<PAGE>
Exhibit B
---------
PROSPECTUS

Variable
Annuity Fund I
of Southwestern Life

SOUTHWESTERN LIFE INSURANCE COMPANY

This prospectus describes group flexible payment contracts ("Contracts")
issued by Southwestern Life Insurance Company ("Southwestern") for use as tax
sheltered annuities in retirement programs that satisfy the requirements of
section 403(b) of the Internal Revenue Code ("Code").

Variable Annuity Fund I of Southwestern Life ("Separate Account") is a common
stock fund. Its primary investment objective is long-term capital growth;
realization of current income is a secondary objective.

This prospectus sets forth information about the Separate Account that a
prospective investor ought to know before investing and should be kept for
future reference. Additional information about the Separate Account has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information, dated May 10, 1995, which information is incorporated herein by
reference and is available without charge by writing to Southwestern Life
Insurance Company, P.O. Box 2699, Dallas, Texas 75221-9917, or by calling
1-800-792-4368.

The Table of Contents of the Statement of Additional Information appears on
page 17 of this prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Prospectus Dated May 10, 1995

<PAGE>
TABLE OF CONTENTS

Page
Definitions 3
Synopsis 3
The Contracts 3
The Separate Account 4
Condensed Financial Information 4
Southwestern 5
The Separate Account 6
Investment Policies 6
Management 7
Conversion of Separate Account 7
Investment Adviser 7
Deductions and Expenses 8
Deductions for Sales and
Other Expenses 8
Charges for Investment Services
and Mortality and Expense
Undertakings 9
Other Expenses 9
Accumulation Period 9
Application for Contracts 9
Crediting Accumulation Units 9
Value of an Accumulation Unit 10
Net Investment Factor 10
Valuation of the Separate Account 10
Termination 10
Annuity Period 11
Annuity Forms 11
Death Benefits 12
Death Before the Annuity Date 12
Death After the Annuity Date 13
Federal Tax Consequences 13
Assignment 14
Modification 14
Voting Rights 15
Suspension 15
Principal Underwriter 15
Safekeeping of Securities 16
Legal Proceedings 16
Contract Owner Inquiries 16
Earlier Contracts 16
Table of Contents of the Statement of
Additional Information 17

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION
TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.

2
<PAGE>

DEFINITIONS

Accumulation Unit: a measuring unit used to calculate the value of a Contract
before annuity payments begin.

Annuitant: a person on whose life annuity payments are based.

Annuity Unit: a measuring unit used to calculate the amount of annuity
payments.

Contract Owner: the person who has title to the Contract.

Fixed-Dollar Annuity: an annuity providing for payments that remain fixed in
amount throughout the payment period.

General Account: all assets of Southwestern that are not allocated to and
made a part of the Separate Account or any other segregated account of
Southwestern.

Participant: a person who makes Purchase Payments, or for whom Purchase
Payments are made, under a group Contract.

Purchase Payment: amount paid to Southwestern pursuant to the Contract.

Valuation Date: Each Monday through Friday with certain limited exceptions
such as days when changes in the value of the investment company's portfolio
securities do not materially affect the current net asset value of the
investment company's redeemable securities, and on the day following
Thanksgiving.

Variable Annuity: an annuity providing for payments that vary in amount with
the investment experience of the Separate Account.

SYNOPSIS

The Contracts

The Contracts offered by this prospectus are group flexible premium variable
annuity Contracts under which annuity payments will commence on a selected
future date (see "Annuity Period," page 11). The Contracts primarily are
intended for use as tax-sheltered annuity contracts issued to employees of
public school systems, certain tax-exempt organizations and state-supported
educational systems pursuant to section 403(b) of the Code (see "Federal Tax
Consequences," page 13). A Contract that covers all Participants is issued to
the Contract Owner. Each Participant receives a certificate that summarizes
the provisions of the Contract and evidences participation in the annuity
purchase plan.

The minimum initial and subsequent premium under the Contract is $10 (see
"Application for Contracts," page 9). Premiums, less deductions for sales and
administrative expenses and applicable premium taxes, are held in the Separate
Account. The deduction for sales and administrative expenses is 6 1/4%,
consisting of 3 1/4% for sales expense and 3% for administrative expense (see
"Deductions for Sales and Other Expenses," page 8). Where applicable, a
deduction is made from each payment for premium taxes (currently ranging from
.5% to 3.0%). The Contract provides for charges equal to 1.325% on an annual
basis of the average daily net asset value of the Separate Account, consisting
of .325% for investment advisory services and 1% for mortality and expense
risk undertakings by Southwestern. Southwestern estimates .70% is allocated to
its mortality undertakings and .30% to its expense undertaking (see "Charges
for Investment Services and Mortality and Expense Undertakings," page 9).

The Contract includes Southwestern's undertaking to provide annuity payments
determined in accordance with the applicable annuity tables and other
provisions in the Contract for the lifetime of the Annuitant regardless of the
actual mortality experience among Annuitants. Southwestern also provides an
undertaking that the deductions for sales and administrative services will be
the only cost to Participants for these services, regardless of the actual
cost to Southwestern.

3
<PAGE>

During the accumulation period, a Participant's account or a portion thereof
may be redeemed for a cash payment equal to the value of the Accumulation
Units redeemed, valued at the next determined unit value after Southwestern
receives notice of the redemption request (see "Termination," page 10).
No redemption charge is imposed.

Contract Owner Transaction Expenses (1), as a percentage of the purchase
payments
Sales Load Imposed on Purchases . . . . . . . . . . . . . 3.25 %
Administrative Expenses . . . . . . . . . . . . . . . . . . 3.00 %
Annual Expenses, as a percentage of average net assets (for the year ended
December 31, 1994, as adjusted)(2)
Management fees . . . . . . . . . . . . . . . . . . . . . 0.325%
Mortality Undertaking . . . . . . . . . . . . . . . . . . 0.70 %
Expense Undertaking . . . . . . . . . . . . . . . . . . . 0.30 %
Other expenses . . . . . . . . . . . . . . . . . . . . . 0.663%
Total Annual Expenses . . . . . . . . . . . . . . . . . 1.988%

EXAMPLE 1 year 3 years 5 years 10 years
If you surrender (or annuitize) your Contract
at the end of the applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $82 $123 $168 $303
If you do not surrender your Contract:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $82 $123 $168 $303

(1) State Premium Taxes (ranging from .5% to 3.0%) are not included.

(2) Actual expenses adjusted to reflect annualized investment advisory fees.
During 1994, no advisory fees were paid from February 11, 1994 to May 2, 1994,
the date the Separate Account executed a new advisory agreement with SLC
Financial Services, Inc.

The EXAMPLE, a projection, should not be considered a representation of past
or future expenses. Actual expenses may be greater or lesser than those shown.

THE PURPOSE OF THE ABOVE TABLE IS TO ASSIST CONTRACT OWNERS
IN UNDERSTANDING THE EXPENSES THAT THEY BEAR DIRECTLY AND INDIRECTLY.
SEE "DEDUCTIONS AND EXPENSES," PAGE 8.

As described in Note 2 of the above table, the expense information in the
table has been adjusted to reflect annualized investment advisory fees.

The Separate Account

The Separate Account operates as an open-end, diversified management
investment company registered with the Securities and Exchange Commission
("Commission") under the Investment Company Act of 1940 ("1940 Act"). The
primary objective of the Separate Account is to select investments from the
long-term view of a prudent investor concerned primarily with the growth of
capital in relation to the growth of the economy and the changing value of the
dollar; realization of current income is a secondary objective (see
"Investment Policies," page 6). The Separate Account's assets normally are
invested in a portfolio of equity-type securities, principally common stocks.

Historically, the value of a diversified portfolio of common stocks held for
an extended period of time has tended to rise during periods of inflation.
However, there has been no exact correlation and for some periods, common
stock prices have declined while the cost of living has risen. There can be no
assurance that the Separate Account's objectives will be attained.

SLC Financial Services, Inc. ("SLC Financial", formerly known as I.C.H.
Financial Services, Inc.) is investment adviser for the Separate Account (see
"Investment Adviser," page 7). Philadelphia Life Asset Planning Company
("PLAPCO") is principal underwriter of the Contracts (see "Principal
Underwriter," page 15). Southwestern is the insurer of the Contracts (see
"Southwestern," page 5).

CONDENSED FINANCIAL INFORMATION

The following per unit income and capital changes data for the nine years
ended December 31,1994, have been examined by Coopers & Lybrand L.L.P.,
independent certified public accountants. The per unit income and capital
changes data for the year ended December 31, 1985, were examined by other
accountants whose reports thereon expressed unqualified opinions on the data.
The data reflects operations conducted before May 1, 1987, the date SLC
Financial became the investment adviser of the Separate Account.

4
<PAGE>
<TABLE>
<CAPTION>
(For an accumulation unit outstanding throughout the year)

Year Ended December 31,

1994 1993 1992 1991 1990 1989 1988 1987 1986 1985

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Qualified unit:
Investment income $ .187 $ .176 $ .163 $ .188 $ .222 $ .172 $ .111 $ .084 $ .081 $ .077
Expenses .106 .105 .097 .084 .074 .065 .053 .049 .045 .038
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income .081 .071 .066 .104 .148 .107 .058 .035 .036 .039
Net realized and
unrealized gain (loss)
on securities .231 .101 .200 .918 (.116) .811 .188 (.167) (.054) .462
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in unit value .312 .172 .266 1.022 .032 .918 .246 (.132) (.018) .501
Unit value:
Beginning of year 5.398 5.226 4.960 3.938 3.906 2.988 2.742 2.874 2.892 2.391
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
End of year $5.710 $5.398 $5.226 $4.960 $3.938 $3.906 $2.988 $2.742 $2.874 $2.892
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
Number of units
outstanding at end of
year (in thousands) 685 701 764 930 1,156 1,399 1,819 2,193 2,641 3,348
======= ====== ====== ====== ====== ====== ====== ====== ====== ======

Nonqualified unit:
Investment income $ .170 $ .160 $ .149 $ .171 $ .202 $ .157 $ .101 $ .076 $ .074 $ .070
Expenses .096 .096 .088 .076 .067 .059 .048 .044 .041 .034
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income .074 .064 .061 .095 .135 .098 .053 .032 .033 .036
Net realized and
unrealized gain (loss)
on securities .210 0.92 .183 .834 (.106) .737 .171 (.152) (.049) .420
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in unit value .284 .156 .244 .929 .029 .835 .224 (.120) (.016) .456
Unit value:
Beginning of year 4.913 4.757 4.513 3.584 3.555 2.720 2.496 2.616 2.632 2.176
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
End of year $5.197 $4.913 $4.757 $4.513 $3.584 $3.555 $2.720 $2.496 $2.616 $2.632
======= ====== ====== ====== ====== ====== ====== ====== ====== ======

Number of units
outstanding at end of
year (in thousands) 112 112 116 116 124 135 139 156 161 179
======= ====== ====== ====== ====== ====== ====== ====== ====== ======

Ratios:
Expenses to average
net assets % 1.91 1.98 1.95 1.92 1.91 1.83 1.81 1.47 1.43 1.42
Net investment income to
average net assets % 1.47 1.33 1.35 2.39 3.85 3.01 1.98 1.06 1.16 1.48
Portfolio turnover % 6 9 5 25 8 44 18 6 78 55
</TABLE>

Note: Prior to 1984, federal income taxes or benefits were charged or credited
to accumulation unit values on nonqualified units on each valuation date and
affected net realized and unrealized gain (loss).

The Separate account has had no senior securities (or outstanding bank loans)
during the last ten fiscal years.

Financial Statements of the Separate Account and Southwestern may be found in
the Statement of Additional Information. A copy of the Statement of Additional
Information may be obtained without charge by written request to Southwestern
Life Insurance Company, P.O. Box 2699, Dallas, Texas 75221 -9917, or by
calling 1-800-792-4368.

SOUTHWESTERN

Southwestern is a stock life insurance company originally chartered in 1903
under the laws of the State of Texas. Its home office is located at 500 North
Akard, Dallas, Texas 75201. Southwestern primarily writes life insurance. It
is licensed to do life insurance business in 39 states and in the District of
Columbia. Southwestern is an indirect wholly-owned subsidiary of Southwestern
Life Corporation ("SLC", formerly known as I.C.H. Corporation), an insurance
holding company.

5
<PAGE>

THE SEPARATE ACCOUNT

On December 19, 1967, the Board of Directors of Southwestern established the
Separate Account in accordance with certain provisions of the Texas Insurance
Code. The Separate Account is registered with the Commission as a diversified
open-end management investment company under the 1940 Act. Such registration
does not involve supervision by the Commission of the management or investment
practices or policies of the Separate Account.

The Separate Account is administered and accounted for as part of the general
business of Southwestern, but the income, gains and losses whether or not
realized, from assets allocated to the Separate Account are, in accordance
with the Contracts, credited or charged against the Separate Account without
regard to other income, gains or losses of Southwestern. Assets of the
Separate Account are not chargeable with liabilities arising out of any other
business of Southwestern.

All obligations arising under the Contract, including the obligation to make
annuity payments, are general corporate obligations of Southwestern and all of
Southwestern's assets are available to meet its expenses and obligations under
the Contracts. However, while Southwestern is obligated to make the variable
annuity payments under a Contract, the amount of these payments is not
guaranteed.

On April 7, 1995, the University of Texas at Austin, P.O. Box 8047, Austin,
Texas 78712, owned a group variable annuity contract which represented 10.17%
of the assets of the Separate Account. In addition, Southwestern owned an
11.22% interest in the assets of the Separate Account, as of April 7, 1995, by
virtue of its initial contribution to the Separate Account when the Separate
Account was organized.

INVESTMENT POLICIES

The primary objective of the Separate Account is to select investments from
the long-term view of a prudent investor concerned primarily with the growth
of capital in relation to the growth of the economy and the changing value of
the dollar. Realization of current income is a secondary objective. Earned
income and realized capital gains are reinvested. The Separate Account keeps
its assets fully invested, but may maintain reasonable amounts in cash or in
short-term debt securities to meet current expenses and normal Contract
payments and redemptions to accommodate the orderly programming of
investments. These objectives and policies cannot be changed without the
approval of Contract Owners. There can be no assurance that the investment
objectives of the Separate Account will be achieved.

The Separate Account normally invests its assets primarily in common stocks,
but from time to time may invest in other equity securities, including
preferred stocks and those debt securities convertible into or carrying rights
to purchase common stocks or to participate in earnings. Normally, holdings of
non-convertible debt securities comprise a relatively small portion of the
Separate Account. There may be times, however, when economic conditions or the
general level of common stock prices are such that investment in a portfolio
made up primarily in common stocks does not appear to be the best method of
achieving the objectives of the Separate Account. At such times, the Separate
Account for temporary defensive purposes may invest all or any portion of its
assets in government and corporate bonds or debentures whether or not
convertible into stock or carrying rights to purchase common stocks or to
participate in earnings, or in other similar types of investments of
comparable or lower risk as management may deem appropriate under the
circumstances. The Separate Account may invest in both listed and unlisted
securities, but none of the Separate Account's assets will be invested in
common stocks of corporations that have defaulted in the payment of any debt
within the past five years. The Separate Account will not invest in foreign
securities unless they are publicly traded in the United States.

It is the Separate Account's policy to purchase securities for investment
rather than engage in short-term trading, but this policy does not preclude
occasional investment with a view to obtaining short-term capital
appreciation. Because changes in economic conditions not foreseen at the time
of investment may occur and because no tax disadvantage results if short-term
profits are realized, the right is reserved to make adjustments in the
Separate Account's portfolio as may be deemed advisable. In view of the
Separate Account's primary objective of achieving long-term growth of capital
and the added brokerage charges that result from short-term trading,
management does not intend to follow a general practice of seeking short-term
capital gains.

6
<PAGE>

To the extent consistent with its investment policies, the Separate Account
limits portfolio turnover. The rate of portfolio turnover of the Separate
Account for the year 1994 was 6%; for 1993 it was 9%; and for 1992 it was 5%.
It is anticipated that annual portfolio turnover will not exceed 50%; however,
the rate varies depending on how SLC Financial deems the Separate Account's
investment objective can best be achieved within existing market conditions.
The rate of portfolio activity affects brokerage costs to the Separate
Account.

The basic objective of the Contracts is to provide benefits over the lifetime
of an Annuitant that will tend to vary with changes in the cost of living.
There is no assurance that the value of a Participant's account will equal or
exceed the Purchase Payments made.

The dollar amount of variable annuity payments varies with the investment
experience of the Separate Account and reflects the Separate Account's
investment experience throughout the Contract's existence. The value of the
Separate Account's investments fluctuates daily and is subject to all the
risks of changing economic conditions, as well as the risks inherent in
management's ability to anticipate changes in investments necessary to meet
changes in economic conditions.

Because it is impossible to predict how long an Annuitant will live and
because annuity payments vary, there is no way of knowing whether the
aggregate amount of the variable annuity payments received in the years
following the commencement of annuity payments will equal or exceed the amount
applied to provide these payments.

MANAGEMENT

The Separate Account is managed by a Board of Managers and the affairs of the
Separate Account are conducted in accordance with rules and regulations
adopted by the Board of Managers.

CONVERSION OF SEPERATE ACCOUNT

In 1993, the Board of Managers approved a proposal for conversion (the
"Conversion") of the Separate Account from a management investment company
into a unit investment trust, and began exploring means for implementing the
Conversion. If such a Conversion were implemented, the Separate Account would
no longer invest directly in a diversified portfolio of securities as it now
does. Instead, it would invest solely in the shares of a specified mutual fund
(or investment series thereof) having substantially similar investment
objectives as the Separate Account now does. Additionally, other matters
relating to the Separate Account, such as fees and expenses, would be changed
in the event of the Conversion. The Board of Managers has approved an
agreement in principle with the Capital Growth Portfolio of the Scudder
Variable Life Investment Fund under which a Conversion would be effected and
has voted to submit a proposal to Contract Holders regarding the Conversion
pursuant to such agreement. Any such agreement would be conditioned upon the
approval of Contract Owners, and no such Conversion would take place until it
has been submitted to, and approved by, Contract Owners. The Board of Managers
intends to present this proposal regarding the Conversion for the
consideration of the Contract Owners shortly.

INVESTMENT ADVISER

SLC Financial, a direct, wholly-owned subsidiary of SLC, is the investment
adviser for the Separate Account pursuant to an advisory agreement approved by
Contract Owners on May 2, 1994. SLC Financial was incorporated in Delaware on
December 17, 1986, and is registered as an investment adviser under the
Investment Advisers Act of 1940. SLC Financial is located at 100 Mallard Creek
Road, Suite 400, Louisville, Kentucky 40207.

SLC Financial has previously served as investment adviser for the Separate
Account, pursuant to an advisory agreement approved by Contract Owners at a
special meeting on March 27, 1987. On February 11, 1994, however, certain
transactions occurred as described below, that arguably resulted in an
"assignment" of that advisory agreement for purposes of the 1940 Act. As is
required by the 1940 Act, the advisory agreement provided for its automatic
termination in the event of its assignment. In addition, the 1940 Act requires
that no person may serve as investment adviser of a registered investment
company except pursuant to a written contract which, among other things, has
been approved by a majority of the outstanding voting securities of such
company. The Separate Account, Southwestern and SLC Financial do not concede
that the transactions resulted in any such assignment. Nevertheless, for

7
<PAGE>

the purpose of preventing a question being raised in the future as to the
validity of the advisory agreement, the Board of Managers of the Separate
Account and SLC Financial agreed to the following course of action: SLC
Financial would reimburse the Separate Account for its advisory fees under the
contract for the period beginning February 11, 1994 and ending on such time as
a new advisory agreement had been entered into between the parties and
approved by the Board of Managers of the Separate Account and by Contract
Owners. The Board of Managers, on April 14, 1994, approved the current
advisory agreement, which was then submitted to and approved by the Contract
Owners on May 2, 1994 at their annual meeting.

The transactions occurring in February 1994 referred to above were (1) the
repurchase by SLC from Consolidated National Corporation ("CNC") and the
retirement of the entire outstanding issue of Class B Common Stock of SLC,
which stock had entitled its holders to elect 75% of the directors of SLC; and
(2) the sales by CNC and its majority-owned subsidiary, Consolidated Fidelity
Life Insurance Company ("CFLIC"), of 4,456,820 shares of SLC Common Stock to
Stephens Inc. ("Stephens") and 4,677,243 shares of SLC Common Stock to
Torchmark Corporation ("Torchmark"). Upon completion of those transactions,
which are described in greater detail in the Statement of Additional
Information, Stephens and Torchmark became the largest beneficial owners of
SLC Common Stock, (9.8% and 9.7%, respectively). Effective June 30, 1994, SLC
acquired from CFLIC 620,423 shares of SLC Common Stock and all of the
outstanding shares of SLC's Series 1984-A and Series 1987-B Preferred Stock,
all of which securities have been retired by the Company. The SLC Common Stock
currently has the power to elect all of SLC's directors. CNC and certain of
its affiliates, after giving effect to the above transactions currently own
approximately 2% of SLC's outstanding Common Stock.

In performing investment services SLC Financial makes and executes investment
decisions for the Separate Account. SLC Financial reports its activities to
the Board upon request so that the Board may determine whether the investment
portfolio is managed in accordance with the investment objectives and policies
of the Separate Account.

Purchases and sales of securities for the Separate Account's portfolio and
selection of the brokers to handle these transactions are made by SLC
Financial. As a general matter, SLC Financial's policy is to seek the most
favorable net security price consistent with efficient execution of orders.
Subject to that policy, SLC Financial considers the furnishing of statistical
data, research information and related services in selecting brokers to
execute the Separate Account's transactions. SLC Financial exercises its
discretion in seeking the best information and research available but is not
obligated to obtain the least expensive execution irrespective of qualitative
considerations.

DEDUCTIONS AND EXPENSES

Charges under the Contracts are assessed in two ways: as deductions from
Purchase Payments and as charges to the Separate Account. The level of these
fees may be revised periodically (see "Modification," page 14). The Separate
Account's total expenses for the 1994 fiscal year as a percentage of average
net assets were 1.91%.

Deductions for Sales and Other Expenses

Deductions are made from each Purchase Payment as received to cover: (i) sales
expenses; (ii) administrative expenses, including but not limited to items
such as salaries and travel expenses of home office officials and employees,
rent, postage, telephone, legal fees, office equipment, stationery and other
office expenses; and (iii) premium taxes, when applicable. The deductions for
administrative expenses are designed only to reimburse Southwestern for its
actual expenses, and Southwestern does not expect to recover from these
deductions any amounts above its accumulated expenses in administering the
Contracts. These deductions do not cover: (i) taxes arising from income and
capital gains on the Separate Account or otherwise from the existence of the
Separate Account; (ii) fees and expenses of audit of the Separate Account; and
(iii) compensation and expenses of the members of the Board of Managers and
employees of the Separate Account who are not "interested persons" (as that
term is defined in the 1940 Act). These other expenses are borne by the
Separate Account other than taxes on income and capital gains (if any) as may
be attributable to Southwestern's initial capital contribution to the Separate
Account, which taxes will be borne by Southwestern. The cost of preparing and
printing annual or other amendments to the Separate Account's registration
statement, including prospectuses, is borne by Southwestern.

8
<PAGE>

Under the Contracts, the deduction is 6 1/4% (plus applicable premium taxes),
consisting of 3 1/4% for sales expense and 3% for administrative expense. This
represents 6.67% (excluding any premium tax) of the amount invested. At the
time annuity benefits are purchased, any additional premium taxes are
deducted. No deduction for sales or administrative expense is made from a
Purchase Payment composed entirely of an amount payable by Southwestern under
a fixed-dollar group annuity contract issued by Southwestern.

Charges for Investment Services and Mortality and Expense Undertakings

Pursuant to a written agreement, SLC Financial acts as the investment adviser
to the Separate Account. A daily charge of .00089% (.325% on an annual basis)
of the net asset value of the Separate Account is made on each Valuation Date
for this service. Southwestern provides the mortality and expense undertakings
under the Contracts and receives a daily charge of .00274% (1.000% on an
annual basis) of the average net asset value of the Separate Account for these
undertakings. Southwestern estimates .70% is allocable to its mortality
undertaking and .30% to its expense undertaking. In the aggregate, the amount
of the above-stated charges is .00363% on a daily basis (1.325% on an annual
basis). Each charge is made daily and is periodically remitted to Southwestern
or SLC Financial, as applicable.

Southwestern provides a mortality undertaking by assuming the risk that its
actuarial estimate of mortality rates among Annuitants may prove erroneous and
that reserves set up on the basis of this estimate will not be sufficient to
meet its annuity payment obligations. Southwestern provides an expense
undertaking by assuming the risk that charges made under the Contracts may not
prove sufficient to cover the actual cost of providing sales, administrative
and other services. If the reserves or charges prove more than sufficient, the
excess will be a profit to Southwestern. If the reserves or charges are not
sufficient, the loss will fall on Southwestern. If the cost of selling the
Contracts is greater than the charges collected, the deficiency will be made
up out of Southwestern's General Account assets which may include profits
derived from the mortality undertaking fee.

Other Expenses

For the year ended December 31, 1994, the Separate Account paid $25,000 in
accountant's fees and $7,500 in Board of Managers' fees. These expense items,
expressed as a percentage of the Separate Account's average net assets for
that year, were 0.663% in the aggregate.

ACCUMULATION PERIOD

Application for Contracts

New Contracts are no longer being marketed or issued. However, Southwestern
continues to accept Purchase Payments on existing Contracts and to accept new
Participants under existing group Contracts.

When new Contracts were being marketed and issued, completed applications for
the Contracts were forwarded to the home office of Southwestern for
acceptance. A Purchase Payment may accompany an application for a Contract.
The minimum initial and subsequent Purchase Payment for a Contract is $10.

Each application was subject to acceptance by Southwestern. As a general rule,
Contracts were issued if any of the following situations existed: (i) there
were fifty or more eligible employees; (ii) there were ten or more
Participants; or (iii) there were at least three Participants and it was
anticipated that contributions under the Contract would aggregate at least
$3,000 per year for the next ten years. Upon acceptance, a Contract was issued
to the Contract Owner and, if a Purchase Payment accompanied the application,
the Purchase Payment (net of deductions for sales and administrative expenses
and applicable premium taxes) was held in the Separate Account and credited to
the Participant's account. If an application was complete upon receipt, the
Purchase Payment was credited to the Participant's account within two business
days. If it was not complete, Southwestern requested additional information to
complete the processing of the application. If this was not accomplished
within five business days, Southwestern would return the Purchase Payment to
the applicant unless otherwise instructed. Subsequent Purchase Payments are
credited to the Participant's account at the price next computed after the
Purchase Payment is received by Southwestern at its home office.

Crediting Accumulation Units

Purchase payments (net of deductions for sales and administrative expenses and
applicable premium taxes) are credited to the Contract in the form of
Accumulation Units. The number of units credited is

9
<PAGE>
determined by dividing the amount credited by the value of an Accumulation
Unit next determined after the Purchase Payment is received by Southwestern at
its home office.

The number of Accumulation Units credited is not affected by any subsequent
change in the value of an Accumulation Unit, but the dollar value of an
Accumulation Unit may vary from date to date depending upon the investment
experience of the Separate Account.

Value of an Accumulation Unit

The value of an Accumulation Unit is determined on each Valuation Date by
multiplying the Accumulation Unit value for the immediately preceding date by
the net investment factor for the current date. The value of a Participant's
account at any time prior to the commencement of annuity payments can be
determined by multiplying the total number of Accumulation Units credited to
his or her account by the current Accumulation Unit value. The Participant
will be advised at least twice each year of the number of Accumulation Units
credited to his or her account and the current dollar value of an Accumulation
Unit.

Net Investment Factor

The net investment factor is an index of the percentage change (adjusted for
the deduction of the fees for advisory services and mortality and expense
undertakings) in the net asset value of the Separate Account since the
preceding Valuation Date. This factor may either be positive or negative
depending upon the Separate Account's investment performance.

Valuation of the Separate Account

The value of the Separate Account is the sum of its assets minus its
liabilities. Portfolio securities generally are valued at market value.
However, securities for which market quotations are not readily available are
valued at fair value as determined in good faith by the Board of Managers.
Short-term obligations are valued at cost.

Termination

During the accumulation period a Participant's account, or a portion thereof,
may be redeemed for a cash payment equal to the value of the Accumulation
Units redeemed as next determined after receipt of proper notice by
Southwestern at its home office on a form obtained from Southwestern. Upon
redemption of a portion of a Participant's account, the account is reduced by
the number of Accumulation Units redeemed. No redemption charge is imposed by
Southwestern.

A redemption of all or a portion of a Participant's account resulting in a
cash payment to a resident of any one of certain states may result in a
reduction of Southwestern's premium tax liability in that state. In this
event, Southwestern will pay in addition to the value of the Accumulation
Units redeemed, an amount equal to the lesser of:

(i) the amount by which the premium tax liability of Southwestern is
reduced as a result of this redemption, or
(ii) the amount previously deducted for premium taxes from Purchase
Payments allocable to the Accumulation Units redeemed.

No representation is hereby made that upon the redemption of all or a portion
of an account that any additional payment will be made, since the state of
residence of the Participant and the premium tax laws of that state at the
time of redemption will determine the additional amount payable, if any.

Any cash payment resulting from the partial or complete redemption of a
Participant's account is payable within seven days following receipt by
Southwestern of the request for redemption in proper form provided, however,
the right is reserved to suspend or postpone redemptions during any period
when:
(i) trading on the New York Stock Exchange is restricted by the
Commission or the Exchange is closed for other than weekends and
holidays,

(ii) the Commission has by order permitted suspension, or

(iii) an emergency as determined by the Commission exists making
disposal of portfolio securities or valuation of assets of the
Separate Account not reasonably practicable.

10
<PAGE>

In addition to an election to receive a cash payment for the value of a
Participant's account, the following options are available. An election may be
made to use the redemption value of an account to purchase an individual
deferred fixed dollar annuity or variable annuity. Any such conversion will be
made and the provisions and annuity purchase tables of the contract will be in
accordance with the rules of Southwestern in effect with respect to the
annuity contracts at the time application is made to Southwestern. A
Participant under a Contract who becomes an employee of another employer which
has a contract of the same type then in force with Southwestern may elect,
subject to approval of Southwestern and the new employer, to transfer the
value of his or her individual account to that contract.

If a Contract is issued in connection with the Texas Optional Retirement
Program for employees of certain state-supported educational institutions, a
redemption will require the joinder of the Contract Owner and, in accordance
with an opinion of the Attorney General of Texas, may not be effected prior to
termination of employment, retirement or death of the Participant. Certain
restrictions on distributions from annuity contracts sold to plans qualified
under section 403(b) of the Code also apply. (See "Federal Tax Consequences,"
page 13.)

A Participant may, one time only and within thirty days after a redemption,
reinvest the proceeds with no deduction for sales or other expenses.

ANNUITY PERIOD

The annuity period is that period during which annuity payments are made. The
Participant may select any date for annuity payments to commence with the
exception that annuity payments must begin within five years after the
standard annuity commencement date selected by the Contract Owner. During the
annuity period, an Annuitant receives a monthly variable annuity payment
determined on the basis of the number of variable Annuity Units purchased and
the investment experience of the Separate Account. In addition, the level of
annuity payments is affected by the age of the Annuitant and the annuity form
selected. Each annuity payment is payable on the first business day following
the due date of the payment.

The amount of a variable annuity payment is not affected by adverse mortality
experience or by any excess in Southwestern's expenses over expense deductions
provided for in the Contract. Accordingly, Southwestern provides an
undertaking that its actual expense and actual mortality results will not
adversely affect the dollar amounts of variable annuity payments.

Each month, the Annuitant receives the value of a fixed number of Annuity
Units. The value of an Annuity Unit, and the amount of the monthly payments,
reflects the Separate Account's investment gains and losses and investment
income. Accordingly, payments vary with the investment experience of the
assets of the Separate Account.

The Annuity Unit is a measure of the value of the Annuitant's income from a
variable annuity Contract during the annuity period. The value of an Annuity
Unit is determined by multiplying the value of an Annuity Unit for the
immediately preceding date by the product of (i) the net investment factor for
the date the value is calculated and (ii) a factor to neutralize the net
investment rate built into the annuity tables contained in the Contract.

The objective of the Contract is to provide annuity payments that tend to vary
with changes in the cost of living over the life of an Annuitant. The
achievement of this objective depends in part upon the validity of the
assumption that the annual net investment rate built into the annuity tables
will be realized. Payments will be smaller than, equal to or greater than the
first payment, depending upon whether the actual net investment rate is
smaller than, equal to or greater than the assumed annual net investment rate.
A higher assumption would mean a higher initial payment but a more slowly
rising series of subsequent payments if actual investment performance exceeds
the assumed rate, or a more rapidly falling series of subsequent payments if
actual performance is less than the assumed rate. A lower assumption would
have the opposite effect. If the actual net investment rate is at the assumed
rate, the annuity payments are level.

Annuity Forms

The Annuitant is generally given the choice of receiving annuity payments in
accordance with the annuity forms set forth in the Contract. The right to
elect annuity forms may be restricted to comply with

11
<PAGE>

the Code. In the absence of an effective election, a variable annuity on
Annuity Form 2 will be deemed to have been elected, with annuity payments
guaranteed for ten years. In general, the longer annuity payments are
guaranteed, the lower the amount of each payment. No minimum value for a
Participant's account is required to elect any of the annuity forms specified
below.

Annuity Form 1 - Life Annuity

An annuity payable monthly during the lifetime of the Annuitant and
terminating with the last monthly payment preceding the death of the
Annuitant. This annuity form offers the maximum level of monthly payments
since there is no undertaking by Southwestern to provide a minimum number of
payments or a death benefit for beneficiaries. It would be possible for the
Annuitant to receive only one payment, if he died prior to the due date of the
second annuity payment.

Annuity Form 2 - Life Annuity with 5, 10, 15 or 20 Years Certain

An annuity payable monthly during the lifetime of an Annuitant with payments
assured for an elected certain period of 5, 10, 15 or 20 years. If the
Annuitant dies during the period, however, the beneficiary may elect to
receive in one sum the present value of the remaining number of payments,
based on interest at the assumed annual net investment rate in the annuity
table included in the Contract, compounded annually.

Annuity Form 3 - Unit Refund Life Annuity

An annuity payable monthly during the lifetime of the Annuitant, terminating
with the last payment due prior to death of the Annuitant, provided that the
beneficiary will then receive a payment of the dollar value, as of the date of
the Annuitant's death, of a number of Annuity Units equal to the excess, if
any, of (a) over (b) where (a) is the total amount applied under this annuity
form divided by the Annuity Unit value for the date on which annuity payments
commence and (b) is the number of Annuity Units represented by each monthly
payment multiplied by the number of monthly payments made.

Annuity Form 4 - Joint Life and Survivor Annuity - 10 Years Certain

An annuity payable monthly for 10 years and so long thereafter as either the
Annuitant or the joint Annuitant shall live. If both Annuitants die during the
certain period, the present value of the remaining payments, based on interest
at the assumed annual net investment rate in the annuity table included in the
Contract, compounded annually, will be paid.

A participant may, if a greater initial payment would result, prior to the due
date of the first annuity payment, elect an annuity with a first monthly
payment in the amount which can be provided by a single premium life annuity
contract, if any are then being issued by Southwestern, at the current
published rates with a single premium equal to 103% of the amount that would
otherwise be applied to determine the first monthly payment.

DEATH BENEFITS

Death Before the Annuity Date

Under the Contract, the amount payable upon death of a Participant before the
due date of the first annuity payment is equal to the dollar value of the
Participant's individual account as of the date on which proof satisfactory to
Southwestern of the Participant's death is received by Southwestern.

If the total death benefit is $2,000 or more, payment may be made to the
beneficiary in installment payments instead of one cash payment or payment may
be deferred for a specified period of time, during which interest is added by
Southwestern to the sum deferred.

All certificates issued after January 18, 1985, are required by the Code to
provide that, if the Participant dies before the annuity starting date, his or
her entire interest must be distributed within 5 years. An exception to this
requirement exists for any portion of the participant's interest payable to
(or for the benefit of) a designated beneficiary, and (i) such portion will be
distributed over the life, or a period not exceeding the life expectancy of
the designated beneficiary and (ii) such distributions will begin not later
than one year after the Participant's death or such later date as may be
prescribed by regulations issued by the Secretary of the Treasury. If the
designated beneficiary is the surviving spouse of the Participant, he or she
will be treated as the Participant.

12
<PAGE>

Death After the Annuity Date

If the Annuitant under the Contract dies after the annuity date, the death
proceeds, if any, depend upon the form of annuity payment in effect at the
time of death (see "Annuity Forms," page 11).

A certificate issued after January 18, 1985, is also required to provide that,
if the Annuitant dies on or after the annuity date, the remaining portion of
his or her interest will be distributed at least as rapidly as under the
method of distribution used at the date of the Annuitant's death.

FEDERAL TAX CONSEQUENCES

The operations of the Separate Account form part of the operations of
Southwestern, but the Code currently provides that if certain conditions are
satisfied no federal income tax is payable by Southwestern on the investment
income and capital gains of the Separate Account other than the amount of such
income and capital gain (if any) as may be attributable to Southwestern's
initial capital contribution in the Separate Account. No federal income tax is
payable by a Participant under a certificate until annuity payments commence
or a full or partial withdrawal is made if the investments of the Separate
Account meet certain diversification requirements.

The amount of premiums paid by the employer are excluded from the employee's
income for the taxable year to the extent that the payments do not exceed the
employee's exclusion allowance for the taxable year. In addition,
tax-sheltered annuities may permit nondeductible employee contributions.

Payments to purchase a tax-sheltered annuity contract for an employee are
subject to the overall limits on contributions and benefits applicable to
tax-sheltered plans under section 403(b) or, if applicable, section 415 of the
Code.

All distributions, with the exception of a return of nondeductible employee
contributions, are included in gross income in the year they are paid. If an
amount is received before the annuity starting date, the Participant may be
allowed to recover pre-1987 nondeductible employee contributions tax-free
before receiving the taxable income. Otherwise, both before and after the
annuity starting date, each payment under a certificate is treated in part as
a return of nondeductible employee contributions and the remainder as taxable
income.

The Tax Reform Act of 1986 imposes restrictions on distributions (i.e.,
redemptions in whole or part) from annuity contracts sold to plans qualified
under section 403(b) of the Code. These restrictions are effective in tax
years beginning after December 31, 1988. Section 403(b)(11) of the Code
requires that for such annuity contracts to receive tax-deferred treatment,
they must provide that:

Distributions attributable to contributions made pursuant to a salary
reduction agreement be paid only:

(1) when the employee attains age 59 1/2 separates from service, dies, or
becomes disabled (within the meaning of section 72(m) (7)); or

(2) in the case of hardship. In hardship cases, only the distribution of
contributed amounts is permitted; distribution of any income attributable to
these contributions is prohibited.

The contracts described in this prospectus were modified to comply with these
changes in the Code. Disclosure relating to "Termination" of the contracts and
redemption of all or a portion of a Participant's account should be read with
the above restrictions in mind.

Distributions from contracts that are attributable to assets held as of
December 31, 1988, are not subject to these Code restrictions.

13
<PAGE>

In the case of benefits accruing under a tax-sheltered annuity after 1986, the
Contract value must be distributed or annuity payments must be commenced by
April 1 of the calendar year following the year in which the Participant
retires or attains age 70 1/2. Such payments are based upon the life expectancy
or a period not exceeding the life expectancy of the Participant or the
Participant and a designated beneficiary. At least 50% of the present value of
the amount available for distribution under a tax-sheltered annuity must be
paid within the life expectancy of the Participant. This rule does not apply
where the Participant's spouse is the designated beneficiary, but each payment
to the spouse must be no greater than each payment to the Participant and
spouse. If certain requirements of the Code are met, distributions from a
tax-sheltered annuity may be rolled over tax-free to another qualified plan or
to an IRA. However, distributions required to be made under the Code cannot be
rolled over.

Southwestern is required to withhold federal income tax on annuity payments
and on distributions required by the Code. However, recipients of Contract
distributions are allowed to make an election not to have federal income tax
withheld. After such an election is made with respect to annuity payments, an
Annuitant may revoke the election at any time, and commence withholding. In
this case, Southwestern will notify the payee at least annually of his or her
right to change the election.

However, for any lump-sum, partial or other distributions made on or after
January 1, 1993, that are eligible in whole or in part to be rolled over
tax-free into another eligible plan, contract or IRA, Southwestern is required
to withhold 20% of the taxable portion of the distribution, unless the
eligible portion of the distribution is transferred directly to such other
plan, contract or IRA in a direct "trustee-to-trustee" transfer. Recipients of
such distributions are not permitted to waive the 20% withholding requirement.

Payees are required by law to provide Southwestern (as payor) with their
correct taxpayer identification number. If the payee is an individual, this
number is his or her social security number.

The description in this prospectus of the federal tax status of amounts
accumulated or received under the Contract is not exhaustive and is for
general information purposes only. For this reason, a qualified tax adviser
should be consulted for complete tax information regarding any specific
situation.

ASSIGNMENT

Assignment by a Participant of his or her interest in any payment or benefits
under a Contract is prohibited, unless such prohibition is contrary to
applicable law.

MODIFICATION

The Contracts may be modified by Southwestern from time to time to the extent
necessary to make the Contracts conform to any law or regulation issued by a
governmental agency. No other modification can be made before the Contract's
fifth anniversary without the Contract Owner's agreement. No mutually agreed
upon modification, however, will adversely affect Accumulation or Annuity
Units credited before its effective date without the agreement of Participants
and Annuitants covered by the Contract.

Group variable Annuity contracts are normally in force over many years, and
the character of the group covered by the Contract continually changes, thus
affecting Southwestern's ability to predict the future costs of administering
the Contract. Accordingly, on the fifth or any later Contract anniversary,
Southwestern reserves the right to modify the Contract, including the
deductions from Purchase Payments for sales and administrative expense, the
periodic charge for mortality and expense undertakings, the annuity purchase
rates, and (provided Contract Owners have approved a new investment advisory
agreement) the periodic charge for investment services. No modification will
adversely affect Accumulation or Annuity Units credited before its effective
date. At least 90 days' notice of any such modification will be given to the
Contract Owner, and notice will also be given to each Participant and
Annnuitant covered by the Contract.

14
<PAGE>

VOTING RIGHTS
Contract Owners have the right to vote at any meeting of Contract Owners. The
number of votes that a Contract Owner may cast in the accumulation period is
equal to the number of Accumulation Units under the Contract. In the annuity
period, the number of votes that the Contract Owner may cast is equal to (i)
the amount of the assets maintained in the Separate Account to meet the
annuity obligations under the Contract divided by (ii) the value of an
Accumulation Unit. Generally, the number of votes decreases during the annuity
period.

The number of votes that each Contract Owner may cast shall be determined as
of a record date to be chosen by the Board of Managers within 90 days of the
date of the meeting. At least 10 days' written notice of the meeting will be
given.

To be entitled to vote, a Contract Owner must have been a Contract Owner on
the record date. Cumulative voting is not authorized. Therefore, the Contract
Owners of more than 50% of the units voting for the election of members of the
Board of Managers can elect 100% of such members if they choose to do so, and
in such event the Contract Owners of the remaining Units voting for such
members will not be able to elect any members.

Each Participant under a Contract will be furnished all proxy materials. Each
Participant will have the right to instruct the Contract Owner with respect to
the votes attributable to the amounts allocated to the Participant under the
terms of the Contract. Each Contract Owner will cast the votes with respect to
which instructions have been received in accordance with such instructions.
Votes with respect to which Participants were entitled to instruct the
Contract Owner, but for which the Contract Owner has received no instructions,
shall be cast by the Contract Owner for or against each proposal to be voted
upon in the same proportion as votes for which instructions have been
received. If the Contract Owner receives no instructions, all votes which such
Contract Owner is entitled to cast may be cast at the Contract Owner's sole
discretion.

SUSPENSION

Southwestern may suspend a Contract on any Contract anniversary if during the
year preceding the anniversary (i) the Contract Owner has failed to remit the
required Purchase Payments or (ii) the number of Participants under the
Contract has become less than ten. A Contract may be suspended upon written
notice to Southwestern by the Contract Owner. Upon suspension, Southwestern
will not accept any further Purchase Payments under the Contract, but
suspension in no way affects the Accumulation Units or Annuity Units
previously credited to any Participant. Suspension of a Contract will not
result in any immediate tax consequences to the Contract Owner or any
Participant.

PRINCIPAL UNDERWRITER

The Contracts have been sold primarily by life insurance agents of
Southwestern who have been properly licensed by the appropriate state
insurance departments. In addition, these agents have been licensed with the
National Association of Securities Dealers, Inc. ("NASD") as registered
representatives of the principal underwriter, PLAPCO. PLAPCO's principal
offices are located at 400 Market Street, 11th Floor, Philadelphia,
Pennsylvania 19106. Although new Contracts are no longer being issued,
Southwestern continues to accept purchase payments on existing Contracts and
to accept new Participants under the existing group Contracts. PLAPCO is a
wholly owned subsidiary of Philadelphia Life Insurance Company which, in turn,
is an indirect wholly-owned subsidiary of Life Partners Group, Inc.

15
<PAGE>

SAFEKEEPING OF SECURITIES

NationsBank of Texas, N.A., P.O. Box 83500, Dallas Texas 75283-3500 serves as
the Separate Account's custodian.

LEGAL PROCEEDINGS

There are no material legal proceedings pending to which the Separate Account
is a party.

CONTRACT OWNER INQUIRIES

Southwestern provides a toll free number for inquiries by Contract Owners and
Participants. The number is 1-800-793-4368. Written questions should be sent
to Southwestern Life Insurance Company P.O. Box 2699, Dallas, Texas
75221-9917.

EARLIER CONTRACTS

Southwestern has outstanding a number of Variable Annuity contracts funded in
the Separate Account that are no longer offered or sold. These earlier
contracts differ in several respects from those described in this prospectus.
Any copy of this prospectus, required to be delivered to an Owner or
Participant under such earlier contract, contains a supplement setting forth
material differences.

16
<PAGE>

TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION

Page
-----

General Information 2
Investment Restrictions and Policies 3
Management 6
Investment Advisory and Other Services 9
Brokerage Allocation 12
Purchase and Pricing of Contracts 13
Valuation of Assets 13
Valuation of Units 14
Illustration of Calculation of Net
Investment Factor 14
Illustration of Calculation of New
Accumulation Unit Value 15
Illustration of Calculation of New
Annuity Unit Value 15
Underwriter 16
Annuity Payments 16
Illustration of Calculation of Annuity
Payments 17
Voting Rights 17
Experience Rating Credits 18
State Regulation 18
Safekeeping of Securities 19
Legal Opinions 19
Accountants 19
Financial Statements 19

17
<PAGE>

Variable Annuity Fund I
of Southwestern Life

For Contracts Issued on Form APDVA
Supplement to Prospectus Dated May 10, 1995

The individual annual premium deferred variable annuity contract issued by
Southwestern on Form APDVA ("Contract") is no longer offered or sold by
Southwestern but remains in effect. The Contract differs from the contract
described in the prospectus in certain material respects. For a complete
description of the provisions of the Contract, in addition to those described
below, see the Contract itself.

(1) Premiums. Premiums may be paid annually, semiannually, quarterly or
monthly, but each purchase payment must be at least $10.

(2) Sales and Administrative Expenses.* A deduction is made from each purchase
payment of 4 1/2% for sales expense plus 3 3/4% for administrative expense for a
total deduction of 8 1/4% (8.99% of the amount invested, excluding premium tax,
if any).

(3) Grace Period. Thirty-one days of grace are granted for the payment of each
premium except the first. During that grace period the Contract will remain in
force.

(4) Premium Default. Any premium for the Contract unpaid at the end of the
grace period will be in default. Upon default, the Contract will be continued
in force as a paid-up variable annuity contract based on the number of
Accumulation Units in the Individual Account as of the due date of the premium
in default and, subject to provision (5) herein, Southwestern will not accept
the payment of any premium thereafter.

(5) Resumption of Premium Payments. Upon the payment of all past due premiums
at any time within three years after the due date of the first premium then in
default and while the Contract is in force as a paid-up variable annuity
contract, premium payments may be resumed in accordance with the provisions of
the Contract.

(6) Annuity Forms. The life annuity with 5 years certain under Annuity Form 2
is not available under the Contract.

(7) Assignment. When the Contract is not used to fund a plan qualified for
favorable tax treatment under the Internal Revenue Code, it may be assigned.

*The expense table on page 4 of the prospectus should be replaced with the
following:
Contract Owner Expenses (1), as a percentage of the purchase payment
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . . 4.50 %
Administrative Expenses . . . . . . . . . . . . . . . . . . . . . 3.75 %
Annual Expenses, as a percentage of average net assets (for the year ended
December 31, 1994, as adjusted)(2)
Management fees . . . . . . . . . . . . . . . . . . . . . . . . 0.325%
Mortality Undertaking . . . . . . . . . . . . . . . . . . . . . 0.70 %
Expense Undertaking . . . . . . . . . . . . . . . . . . . . . . 0.30 %
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . 0.663%
-------
Total Annual Expenses . . . . . . . . . . . . . . . . . . . . 1.988%

EXAMPLE 1 year 3 years 5 years 10 years
If you surrender (or annuitize) your Contract
at the end of the applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $101 $141 $186 $318
If you do not surrender your Contract:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $101 $141 $186 $318

(1) State Premium Taxes (ranging from .5% to 3.0%) are not included.

The EXAMPLE, a projection, should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown.

THE PURPOSE OF THE ABOVE TABLE IS TO ASSIST CONTRACT OWNERS
IN UNDERSTANDING THE EXPENSES THAT THEY BEAR DIRECTLY AND INDIRECTLY.

The expense information in the table has been adjusted to reflect annualized
investment advisory fees.
The Date of this Supplement is May 10, 1995

<PAGE>
Variable Annuity Fund I
of Southwestern Life

For Contracts Issued on Form FPDVA

Supplement to Prospectus Dated May 10, 1995

The individual flexible premium deferred annuity contract issued by
Southwestern on Form FPDVA ("Contract") is no longer offered or sold by
Southwestern but remains in effect. The Contract differs from the contract
described in the prospectus in certain material respects. For a complete
description of the provisions of the Contract, in addition to those described
below, see the Contract itself.

(1) Premiums. Premiums may be paid as often as once a month subject to a $10
minimum. The total amount of premiums payable during any one Contract year
may, at the option of Southwestern, be limited to two times the premium paid
during the first Contract year.

(2) Deductions.* Under the Contract, a deduction is made from each purchase
payment of 4 1/2% for sales expense plus 3 3/4% for administrative expense or
total deduction of 8 1/4% (8.99% of the amount invested, excluding premium tax,
if any).

(3) Right to Cancel. If the Contract is to be used as an IRA, Southwestern
will mail notice of the applicant's right to cancel the application, within 7
days of the notice, for a full refund of any purchase payment.

(4) Annuity Forms. The life annuity with 5 years certain under Annuity Form 2
is not available under the Contract.

*The expense table on page 4 of the prospectus should be replaced with the
following:
Contract Owner Expenses(1), as a percentage of the purchase payment
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . . 4.50 %
Administrative Expenses . . . . . . . . . . . . . . . . . . . . . 3.75 %
Annual Expenses, as a percentage of average net assets (for the year ended
December 31, 1994, as adjusted)(2)
Management fees . . . . . . . . . . . . . . . . . . . . . . . . 0.325%
Mortality Undertaking . . . . . . . . . . . . . . . . . . . . . 0.70 %
Expense Undertaking . . . . . . . . . . . . . . . . . . . . . . 0.30 %
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . 0.663%
------
Total Annual Expenses . . . . . . . . . . . . . . . . . . . . 1.988%

EXAMPLE 1 year 3 years 5 years 10 years
If you surrender (or annuitize) your Contract
at the end of the applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $101 $141 $186 $318
If you do not surrender your Contract:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $101 $141 $186 $318

(1) State Premium Taxes (ranging from .5% to 3.0%) are not included.

The EXAMPLE, a projection, should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown.

THE PURPOSE OF THE ABOVE TABLE IS TO ASSIST CONTRACT OWNERS
IN UNDERSTANDING THE EXPENSES THAT THEY BEAR DIRECTLY AND INDIRECTLY.

The expense information in the table has been adjusted to reflect annualized
investment advisory fees.

The Date of this Supplement is May 10, 1995

<PAGE>
Variable Annuity Fund I
of Southwestern Life

For Contracts Issued on Form GRVA

Supplement to Prospectus Dated May 10, 1995

The group variable annuity contract issued by Southwestern on Form GRVA
("Contract") is no longer offered or sold by Southwestern but remains in
effect. The Contract differs from the contract described in the prospectus in
certain material respects. For a complete description of the provisions of the
Contract, in addition to these described below, see the Contract itself.

(1) Annuity Election. The Participant's right to elect an annuity form is
subject to certain restrictions specified in the Contract.

(2) Withdrawal Options. The Contract Owner will notify Southwestern of the
number of Accumulation Units to be released to a Participant which are not to
be used to provide an annuity. The Participant may, within 31 days after the
date of notice, elect (a) to receive the value of those Accumulation Units in
a cash payment to be made within 7 days, or (b) to convert the value of the
Accumulation Units to an individual deferred annuity contract. In the absence
of an election, Southwestern will pay the value of those units as provided in
(a). Any Accumulation Units in a Participant's Individual Account not used to
provide an annuity for a Participant and not released to the Participant shall
be automatically paid to the Contract Owner.

(3) Discontinuance. The Contract Owner may give written notice to Southwestern
that contributions for the Contract are to be discontinued. Southwestern may
discontinue the Contract where the Contract Owner fails to submit an
application or make a contribution for any Participant in accordance with the
Plan or where it is not practicable, in the opinion of Southwestern, to
provide for the continued purchase of annuities under the Contract because of
a change in the Plan or in the amount of benefits to be provided. If the
Contract Owner fails to make any contribution required by the Plan within 31
days from the date a contribution is due, the Contract will automatically be
discontinued. On discontinuance other than by the Contract Owner, Southwestern
will pay to the Contract Owner an amount equal to the value of the remaining
Accumulation Units.

(4) Benefit Limitations. Employer contributions for any of the 25 highest paid
employees whose anticipated benefit from such contributions will exceed $1,500
may be restricted in certain circumstances specified in the Contract.

The Date of this Supplement is May 10, 1995

<PAGE>
Please send me at no charge, the Statement of Additional Information, dated
May 10, 1995, for Annuity Contracts funded in Variable Annuity Fund I of
Southwestern Life.

(Please print or type and fill in all information.)

Name

Address

City/State/Zip
<PAGE>
Exhibit C
---------
SCUDDER VARIABLE LIFE INVESTMENT FUND

Two International Place
Boston, Massachusetts 02110-4103

(A Mutual Fund)

Scudder Variable Life Investment Fund (the "Fund") is an open-end management
investment company which offers shares of beneficial interest of six diversified
Portfolios, one of which is offered herein. The Capital Growth Portfolio (the
"Portfolio") seeks to maximize long-term capital growth from a portfolio
consisting primarily of equity securities.

This prospectus sets forth concisely the information about the Fund as well as
the Portfolio that a prospective investor should know before applying for
certain variable annuity contracts and variable life insurance policies offered
in the separate accounts of certain insurance companies ("Participating
Insurance Companies"). Please read it carefully and retain it for future
reference. If you require more detailed information, a Statement of Additional
Information dated May 1, 1995, as supplemented from time to time, is available
upon request without charge and may be obtained by calling a Participating
Insurance Company or by writing to broker/dealers offering the above mentioned
variable annuity contracts and variable life insurance policies, or Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103. The Statement of Additional Information, which is incorporated by
reference into this prospectus, has been filed with the Securities and Exchange
Commission.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

SHARES OF THE FUND ARE AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A POOLED
FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF VARIABLE LIFE
INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS.

PROSPECTUS
May 1, 1995

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

Page
INVESTMENT CONCEPT OF THE FUND 1

FINANCIAL HIGHLIGHTS 2

INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO 3

POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO 4
Repurchase Agreements 4
Convertible Securities 4
Foreign Securities 4
When-Issued Securities 5
Loans of Portfolio Securities 5
Derivatives 5
Options 5
Options on Securities Indexes 5
Futures Contracts 6
Forward Foreign Currency Exchange Contracts 6

INVESTMENT RESTRICTIONS 6

INVESTMENT ADVISER 7
Portfolio Management 8

DISTRIBUTOR 8

PURCHASES AND REDEMPTIONS 9

NET ASSET VALUE 9

PERFORMANCE INFORMATION 10

VALUATION OF PORTFOLIO SECURITIES 10

TAX STATUS, DIVIDENDS AND DISTRIBUTIONS 10

SHAREHOLDER COMMUNICATIONS 11

ADDITIONAL INFORMATION 11
Fund Organization and Shareholder Indemnification 11
Other Information 11

TRUSTEES AND OFFICERS 13

<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT CONCEPT OF THE FUND
- --------------------------------------------------------------------------------

Scudder Variable Life Investment Fund (the "Fund") is an open-end, registered
management investment company comprised of six diversified series. Additional
Portfolios may be created from time to time. The Fund is intended to be the
funding vehicle for variable annuity contracts ("VA contracts") and variable
life insurance policies ("VLI policies") to be offered by the separate accounts
of certain life insurance companies ("Participating Insurance Companies"). The
Fund currently does not foresee any disadvantages to the holders of VA contracts
and VLI policies arising from the fact that the interests of the holders of such
contracts and policies may differ. Nevertheless, the Fund's Trustees intend to
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken in
response thereto. The VA contracts and the VLI policies are described in the
separate prospectuses issued by the Participating Insurance Companies. The Fund
assumes no responsibility for such prospectuses.

Individual VA contract holders and VLI policyholders are not the "shareholders"
of the Fund. Rather, the Participating Insurance Companies and their separate
accounts are the shareholders or investors (the "Shareholders"), although such
companies may pass through voting rights to their VA contract and VLI
policyholders.

1
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

Capital Growth Portfolio

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.

If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated December 31, 1994 and may be
obtained without charge by calling a Participating Insurance Company or by
writing to broker/dealers offering the previously mentioned variable annuity
contracts and variable life insurance policies, or Scudder Investor Services,
Inc.

<TABLE>
<CAPTION>
Six For the Period
Months July 16, 1985
Ended (commencement
Years Ended December 31,(e) December of operations)
-------------------------------------------------------------------------- 31, to June 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
-------------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .. $ 14.95 $ 12.71 $ 12.28 $ 8.99 $ 10.21 $ 8.53 $ 7.06 $ 7.67 $ 7.93 $ 6.00(b)
------- ------- ------- ------- ------- ------- -------- -------- ------- -------
Income from investment
operations:
Net investment
income (a) .......... .06 .06 .11 .16 .25 .35 .16 .15 .09 .19
Net realized and
unrealized gain
(loss) on investment
transactions ........ (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28) (.07) 1.87
----- ---- --- ---- ----- ---- ---- ---- ---- ----
Total from investment
operations ........... (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13) .02 2.06
----- ---- --- ---- ---- ---- ---- ---- --- ----
Less distributions from:
Net investment
income .............. (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09) (.07) (.13)
Net realized gains
on investment
transactions ........ (1.31) (.27) (.23) -- (.23) -- -- (.39) (.21) --
----- ---- ---- ---- ---- ----
Total distributions .... (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48) (.28) (.13)
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
end of period ........ $ 12.23 $ 14.95 $ 12.71 $ 12.28 $ 8.99 $ 10.21 $ 8.53 $ 7.06 $ 7.67 $ 7.93
======= ======= ======= ======= ======= ======= ======== ======== ======= =======
Total Return (%) ....... (9.67) 20.88 6.42 39.56 (7.45) 22.75 22.07 (1.88) .26(d) 34.66(d)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) .. 257 257 167 108 45 45 17 10 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) ....... .58 .60 .63 .71 .72 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) ....... .47 .46 .95 1.49 2.71 3.51 2.17 1.68 2.21(c) 2.95(c)
Portfolio turnover
rate (%) ............. 66.44 95.31 56.29 58.88 61.39 63.96 129.75 113.34 38.78(c) 86.22(c)
(a) Portion of expenses
reimbursed .......... $ -- $ -- $ -- $ -- $ -- $ .01 $ .01 $ .04 $ .20 $ .81
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
</TABLE>

2
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND
POLICIES OF THE PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective and policies of the Capital Growth Portfolio (the
"Portfolio") may, unless otherwise specifically stated, be changed by the
Trustees of the Fund without a vote of the Shareholders. There is no assurance
that the objective of the Portfolio will be achieved.

The Portfolio seeks to maximize long-term capital growth through a broad and
flexible investment program. The Portfolio invests in marketable securities,
principally common stocks and, consistent with its objective of long-term
capital growth, preferred stocks. However, in order to reduce risk, as market or
economic conditions periodically warrant, the Portfolio may also invest up to
25% of its assets in short-term debt instruments.

In its examination of potential investments, the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser") considers, among other things,
the issuer's financial strength, management reputation, absolute size and
overall industry position.

Equity investments can have diverse financial characteristics, and the Trustees
believe that the opportunity for capital growth may be found in many different
sectors of the market at any particular time. In contrast to the specialized
investment policies of some capital appreciation funds, the Portfolio is
therefore free to invest in a wide range of marketable securities offering the
potential for growth. This enables the Portfolio to pursue investment values in
various sectors of the stock market including:

1. Companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the
business equipment, electronics, specialty merchandising, and health
service industries.

2. Companies that own or develop natural resources, such as energy
exploration or precious metals companies.

3. Companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunications companies.

4. Foreign companies.

While emphasizing investments in companies with above-average growth prospects,
the Portfolio may also purchase and hold equity securities of companies that may
have only average growth prospects, but seem undervalued due to factors thought
to be of a temporary nature which may cause their securities to be out of favor
and to trade at a price below their potential value.

The Portfolio, as a matter of nonfundamental policy, may invest up to 20% of its
net assets in intermediate to longer term debt securities when management
anticipates that the total return on debt securities is likely to equal or
exceed the total return on common stocks over a selected period of time. The
Portfolio may purchase investment-grade debt securities, which are those rated
Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"), or AAA, AA, A
or BBB by Standard & Poor's ("S&P"), or, if unrated, of equivalent quality as
determined by the Adviser. Bonds that are rated Baa by Moody's or BBB by S&P
have some speculative characteristics. The Portfolio's intermediate to longer
term debt securities may also include those which are rated below investment
grade (that is, rated below Baa by Moody's or below BBB by S&P and commonly
referred to as "junk bonds"), as long as no more than 5% of its net assets are
invested in such securities. As interest rates fall the prices of debt
securities tend to rise and vice versa. Should the rating of any security held
by the Portfolio be downgraded after the time of purchase, the Adviser will
determine whether it is in the best interest of the Portfolio to retain or
dispose of the security.

The Portfolio may, for hedging purposes, purchase forward foreign currency
exchange contracts and foreign currencies in the form of bank deposits. The
Portfolio may also purchase other foreign money market instruments, including,
but not limited to, bankers' acceptances, certificates of deposit, commercial
paper, short-term government obligations and repurchase agreements.

The Portfolio cannot guarantee a gain or eliminate the risk of loss. The net
asset value of the shares of the Portfolio will increase or decrease with
changes in the market price of the Portfolio's investments and, to a lesser
extent, changes in foreign currency exchange rates.

3
<PAGE>
- --------------------------------------------------------------------------------
POLICIES AND TECHNIQUES
APPLICABLE TO THE PORTFOLIO
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS

As a means of earning income for periods as short as overnight, the Fund, on
behalf of the Portfolio, may enter into repurchase agreements with U.S. and
foreign banks, and any broker-dealer which is recognized as a reporting
government securities dealer, if the creditworthiness of the bank or
broker-dealer has been determined by the Adviser to be of a sufficiently high
quality. Under a repurchase agreement, the Portfolio acquires securities,
subject to the seller's agreement to repurchase those securities at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and the seller agrees to maintain the market value of such
securities at least equal to 100.5% of the repurchase price on a daily basis. If
the seller under a repurchase agreement becomes insolvent and the Fund has
failed to perfect its interest in the underlying securities, the Fund might be
deemed an unsecured creditor of the seller and may encounter delay and incur
costs before being able to sell the security. Also, if a seller defaults, the
value of such securities might decline before the Fund is able to dispose of
them. The Trustees have set standards of counterparty creditworthiness and
monitor compliance with such standards.

CONVERTIBLE SECURITIES

The Portfolio may invest in convertible securities (bonds, notes, debentures,
preferred stocks and other securities convertible into common stocks) which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which the Portfolio may invest include fixed income or
zero coupon debt securities, which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
non-convertible securities.

While convertible securities generally offer lower yields than non-convertible
debt securities of similar quality, their prices may reflect changes in the
value of the underlying common stock. Although to a lesser extent than with debt
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. Convertible securities entail less credit risk than the
issuer's common stock. The ratings of the convertible securities in which the
Portfolio may invest will be comparable to the ratings of the Portfolio's fixed
income securities.

FOREIGN SECURITIES

The Portfolio may invest without limit, except as may be applicable to debt
securities generally, in U.S. dollar-denominated foreign debt securities
(including those issued by the Dominion of Canada and its provinces and other
debt securities which meet the criteria applicable to a Portfolio's domestic
investments), and in certificates of deposit issued by foreign banks and foreign
branches of United States banks, to any extent deemed appropriate by the
Adviser. The Portfolio may invest up to 25% of its assets in non-U.S.
dollar-denominated equity securities of foreign issuers. Global investing
involves considerations not typically found in investing in U.S. markets. These
considerations, which may favorably or unfavorably affect the Portfolio's
performance, include changes in exchange rates and exchange rate controls (which
may include suspension of the ability to transfer currency from a given
country), costs incurred in conversions between currencies, devaluations in the
currencies in which the Portfolio's securities are denominated, non-negotiable
brokerage commissions, less publicly available information, different accounting
standards, lower trading volume and greater market volatility, the difficulty of
enforcing obligations in other countries, less securities regulation, different
tax provisions (including withholding on dividends paid to the Fund), war,
expropriation, political and social instability and diplomatic developments.
Further, the settlement period of securities transactions in foreign markets may
be longer than in domestic markets and payment for securities may be required
before delivery. These considerations generally are more of a concern in
developing countries. For example, the possibility of revolution and the
dependence on foreign economic assistance may be greater in these countries than
in developed countries. The Adviser seeks to mitigate the risks associated with
these considerations through diversification and active professional management.

4
<PAGE>
WHEN-ISSUED SECURITIES

The Portfolio may from time to time purchase securities on a "when-issued" or
"forward delivery" basis. Debt securities are often issued on this basis. The
price of such securities, which may be expressed in yield terms, is fixed at the
time a commitment to purchase is made, but delivery and payment for such
securities take place at a later date. During the period between purchase and
settlement, no payment is made by the Portfolio and no interest accrues to the
Portfolio. To the extent that assets of the Portfolio are held in cash pending
the settlement of a purchase of securities, the Portfolio would earn no income;
however, it is the Fund's intention that the Portfolio will be fully invested to
the extent practicable and subject to the policies stated above. While
when-issued or forward delivery securities may be sold prior to the settlement
date, the Portfolio intends to purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time the Portfolio makes the commitment to purchase a security on a
when-issued or forward delivery basis, it will record the transaction and
reflect the amount due and the value of the security in determining the net
asset value of the Portfolio. The market value of the when-issued or forward
delivery securities may be more or less than the purchase price payable at the
settlement date. The Fund does not believe that the Portfolio's net asset value
or income will be adversely affected by the purchase of securities on a
when-issued or forward delivery basis. The Portfolio will establish a segregated
account with its custodian in which it will maintain cash, U.S. Government
securities and other high-grade debt obligations at least equal in value to
commitments for when-issued or forward delivery securities. Such segregated
securities either will mature or, if necessary, be sold on or before the
settlement date.

LOANS OF PORTFOLIO SECURITIES

The Fund may lend the portfolio securities of the Portfolio provided: (1) the
loan is secured continuously by collateral consisting of U.S. Government
securities, or cash or cash equivalents adjusted daily to have a market value at
least equal to the current market value of the securities loaned; (2) the Fund
may at any time call the loan and regain the securities loaned; (3) the
Portfolio will receive any interest or dividends paid on the loaned securities;
and (4) the aggregate market value of securities loaned will not at any time
exceed one-third of the total assets of the Portfolio. In addition, it is
anticipated that the Portfolio may share with the borrower some of the income
received on the collateral for the loan or that it will be paid a premium for
the loan. Before the Portfolio enters into a loan, the Adviser considers all
relevant facts and circumstances including the creditworthiness of the borrower.

DERIVATIVES

The following descriptions of Options, Options on Securities Indexes, Futures
Contracts and Forward Foreign Currency Exchange Contracts discuss types of
derivatives in which the Portfolios may invest.

OPTIONS

The Fund may write covered call options on securities of the Portfolio in an
attempt to earn income. The Portfolio may also write put options to a limited
extent on its portfolio securities in an attempt to earn additional income on
its portfolio, consistent with its investment objective and it may purchase call
and put options for hedging purposes. Risks associated with writing put options
include the possible inability to effect closing transactions at favorable
prices. In addition, the Fund may engage in over-the-counter options
transactions with broker-dealers who make markets in these options.
Over-the-counter options purchased by the Fund and portfolio securities
"covering" the Fund's obligation pursuant to an over-the-counter option may be
deemed to be illiquid and may not be readily marketable. The Adviser will
monitor the creditworthiness of dealers with whom the Fund enters into such
options transactions under the general supervision of the Fund's Trustees. The
Fund may forego the benefit of appreciation in the Portfolio on securities sold
pursuant to call options.

OPTIONS ON SECURITIES INDEXES

The Portfolio may purchase put and call options on securities indexes to hedge
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities. Options on securities indexes are similar to options
on securities except that settlement is made in cash.

Unlike a securities option, which gives the holder the right to purchase or sell
a specified security at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to (i)
the difference between the exercise price of the option and the value of the
underlying stock index on the exercise date, multiplied by (ii) a fixed "index
multiplier." In exchange for undertaking the obligation to make such cash
payment, the writer of the securities index option receives a premium. Gains or

5
<PAGE>

losses on the Portfolio's transactions in securities index options depend on
price movements in the stock market generally (or, for narrow market indexes, in
a particular industry or segment of the market) rather than the price movements
of individual securities held by the Portfolio. In this respect, purchasing a
stock index put option is analogous to the purchase of a put on a securities
index futures contract. The Portfolio may sell securities index options prior to
expiration in order to close out its positions in securities index options which
it has purchased. The Portfolio may also allow options to expire unexercised.

FUTURES CONTRACTS

The Fund may, on behalf of the Portfolio, enter into securities index futures
contracts to protect against changes in securities market prices. The Portfolio
may purchase and write put and call options on futures contracts of the type
which the Portfolio is authorized to enter into and may engage in related
closing transactions. This type of option must be traded on a U.S. or foreign
exchange or board of trade.

When interest rates are rising or stock or security prices are falling, futures
contracts can offset a decline in the value of the Portfolio's current portfolio
securities. When rates are falling or stock or security prices are rising, these
contracts can secure better rates or prices for the Portfolio than might later
be available in the market when it makes anticipated purchases.

The Fund will engage in transactions in futures contracts and options thereon
only in an effort to protect the Portfolio against a decline in the value of the
Portfolio's securities or an increase in the price of securities that the
Portfolio intends to acquire. Also, the initial margin deposits for futures
contracts and premiums paid for related options may not be more than 5% of the
Portfolio's total assets. These transactions involve brokerage costs and require
the Fund to segregate assets, such as cash, U.S. Government securities and
high-grade debt obligations, of the Portfolio to cover contracts which would
require it to purchase securities. The Portfolio may lose the expected benefit
of the transactions if interest rates or stock prices move in an unanticipated
manner. Such unanticipated changes in interest rates or stock prices may also
result in poorer overall performance in the Portfolio than if the Fund had not
entered into any futures transactions for the Portfolio. The Portfolio would be
required to make and maintain "margin" deposits in connection with transactions
in futures contracts.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Portfolio may enter into forward foreign currency exchange contracts
("forward contracts") to the extent of 15% of the value of its total assets, for
hedging purposes. A forward contract is a contract individually negotiated and
privately traded by currency traders and their customers. A forward contract
involves an obligation to purchase or sell a specific currency for an agreed
price at a future date, which may be any fixed number of days from the date of
the contract. The agreed price may be fixed or with a specified range of prices.

- -------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
Unless specified to the contrary, the following restrictions may not be changed
with respect to the Portfolio without the approval of the majority of
outstanding voting securities of the Portfolio (which, under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules thereunder and
as used in this prospectus, means the lesser of (1) 67% of the shares of the
Portfolio present at a meeting if the holders of more than 50% of the
outstanding shares of the Portfolio are present in person or by proxy, or (2)
more than 50% of the outstanding shares of the Portfolio). Any investment
restrictions which involve a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by or on behalf of, the Portfolio.

The Fund may not, on behalf of the Portfolio:

(1) with respect to 75% of the value of the total assets of the Portfolio,
invest more than 5% of the value of the Portfolio's total assets in
the securities of any one issuer, except U.S. Government securities
and, with respect to 100% of the value of the total assets of the
Portfolio, the Fund may not invest more than 25% of the value of the
Portfolio's total assets in the securities of any one issuer, except
U.S. Government securities;

(2) pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by the investment restriction (8) below, it may
pledge securities having a market value at the time of pledge not

6
<PAGE>

exceeding 15% of the value of the Portfolio's total assets and except
in connection with the writing of covered call options and the
purchase and sale of futures contracts and options on futures
contracts;

(3) make loans to other persons, except loans of portfolio securities and
except to the extent that the purchase of debt obligations in
accordance with its investment objectives and policies and the entry
into repurchase agreements may be deemed to be loans;

(4) enter into repurchase agreements or purchase any securities if, as a
result thereof, more than 10% of the total assets of the Portfolio
(taken at market value) would be, in the aggregate, subject to
repurchase agreements maturing in more than seven days and invested in
restricted securities or securities which are not readily marketable;

(5) purchase the securities of any issuer if such purchase would cause
more than 10% of the voting securities of such issuer to be held by
the Portfolio;

(6) purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of the Portfolio at
the time of such purchase to be invested in the securities of one or
more issuers having their principal business activities in the same
industry, provided that there is no limitation in respect to
investments in obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities (for the purposes of this
restriction, telephone companies are considered to be a separate
industry from gas and electric public utilities, and wholly-owned
finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the
activities of the parents).

(7) purchase or sell any put or call options or any combination thereof,
except that the Fund may purchase and sell options on futures
contracts on debt securities, options on securities indexes and
securities index futures contracts and write covered call option
contracts on securities owned by the Portfolio, and may also purchase
call options for the purpose of terminating its outstanding
obligations with respect to securities upon which covered call option
contracts have been written (i.e., "closing purchase transactions").

(8) borrow money except from banks as a temporary measure for
extraordinary or emergency purposes (the Portfolio is required to
maintain asset coverage (including borrowings) of 300% for all
borrowings) and no purchases of securities for the Portfolio will be
made while borrowings of the Portfolio exceed 5% of the Portfolio's
assets (the payment of interest on borrowings by the Portfolio will
reduce the Portfolio's income). In addition, the Board of Trustees has
adopted a policy whereby the Portfolio may borrow up to 10% of its
total assets; provided, however, that the Portfolio may borrow up to
25% of its total assets for extraordinary or emergency purposes,
including the facilitation of redemptions.

"Value" for the purposes of all investment restrictions shall mean the value
used in determining the Portfolio's net asset value (see "NET ASSET VALUE").

- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------

The Fund retains the investment advisory firm of Scudder, Stevens & Clark, Inc.,
a Delaware corporation, Two International Place, Boston, Massachusetts
02110-4103, to manage the Portfolio's daily investment and business affairs
subject to the policies established by the Trustees. The Trustees have overall
responsibility for the management of the Fund under Massachusetts law. The
Adviser is one of the most experienced investment counsel firms in the United
States. It was established in 1919 and pioneered the practice of providing
investment counsel to individual clients on a fee basis. The principal source of
the Adviser's income is professional fees received from providing continuing
investment advice, and the firm derives no income from brokerage, insurance or
underwriting of securities. Today, it provides investment counsel for many
individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. Directly or
through affiliates, the Adviser provides investment advice to over 50 mutual
fund portfolios.

For its advisory services to the Portfolio, the Adviser receives compensation
monthly at an annual rate of 0.475% of the average daily net asset value of the
Portfolio.

Under the investment advisory agreement between the Fund, on behalf of the
Portfolio, and the Adviser, the Fund is responsible for all its other expenses,
including clerical salaries; fees and expenses incurred in connection with

7
<PAGE>

membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; taxes and governmental fees; the charges of
custodians, transfer agents and other agents; any other expenses, including
clerical expenses, of issue, sale, underwriting, distribution, redemption or
repurchase of shares; the expenses of and fees for registering or qualifying
securities for sale; the fees and expenses of the Trustees of the Fund who are
not affiliated with the Adviser; the cost of preparing and distributing reports
and notices to shareholders. The Fund is also responsible for its expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Trustees with respect
thereto. The Adviser, through Scudder Investor Services, Inc., a wholly-owned
subsidiary of the Adviser, places portfolio transactions on behalf of the
Portfolio. In so doing, the Adviser seeks to obtain the most favorable net
results. Subject to the foregoing, the Adviser may consider sales of variable
life insurance policies and variable annuity contracts for which the Fund is an
investment option, as a factor in the selection of firms to execute portfolio
transactions.

In addition to payments for investment advisory services provided by the
Adviser, the Trustees, consistent with the Fund's investment advisory agreement
and underwriting agreement, have approved payments to the Adviser, Scudder
Investor Services, Inc. and Scudder Fund Accounting Corporation for clerical,
accounting and certain other services they may provide the Fund.

For a period of five years from the date of execution of a Participation
Agreement with the Fund, and from year to year thereafter as agreed by the Fund
and the Participating Insurance Company, each of the Participating Insurance
Companies have agreed to contribute to the capital of the Fund to the extent
that the annual operating expenses of the Portfolio exceed 3/4 of 1% of the
average daily net assets of the Portfolio for any year of the Fund. Other
Participating Insurance Companies will be required to enter into similar
arrangements with the Fund. The obligation of each Participating Insurance
Company in relation to the total capital contribution due to the Portfolio will
be the proportion that the average value of the shares of the Portfolio held
during the year by a separate account or separate accounts of such company (or
$1 million, if greater) bears to such average daily net assets. To date, Charter
National Life Insurance Company, Mutual of America Life Insurance Company and
Banner Life Insurance Company have been Participating Insurance Companies for
the past eight, six and five years, respectively, and have made arrangements
with the Adviser to continue their participation.

PORTFOLIO MANAGEMENT

The Portfolio is managed by a team of Scudder investment professionals who each
play an important role in the Portfolio's management process. Team members work
together to develop investment strategies and select securities for the
Portfolio. They are supported by Scudder's large staff of economists, research
analysts, traders, and other investment specialists who work in Scudder's
offices across the United States and abroad. Scudder believes its team approach
benefits Fund investors by bringing together many disciplines and leveraging
Scudder's extensive resources.

Lead Portfolio Manager Steven P. Aronoff assumed responsibility for setting
Capital Growth Portfolio's stock investing strategy and overseeing the
Portfolio's day-to-day operations in 1995. Mr. Aronoff, who joined Scudder in
1969 and the team in 1989, has 27 years of experience in stock research and
investing, including six years of experience as a full-time portfolio manager.
William F. Gadsden, Portfolio Manager, joined the team in 1989 and Scudder in
1983. Mr. Gadsden has 13 years of investment experience. Julia D. Cox, Portfolio
Manager, a member of the team since 1985, has been involved in the investment
industry since 1969 and at Scudder since 1980. Ms. Cox, who has 15 years'
experience as a portfolio manager, offers expertise on financial and technology
stocks.

- --------------------------------------------------------------------------------
DISTRIBUTOR
- --------------------------------------------------------------------------------

The Fund has an underwriting agreement with Scudder Investor Services, Inc. (the
"Distributor"), a wholly-owned subsidiary of Scudder, Stevens & Clark, Inc.
Located at Two International Place, Boston, Massachusetts 02110-4103, the
Distributor is a Massachusetts corporation formed in 1947. Under the principal
underwriting agreement between the Fund and the Distributor, the Fund is
responsible for the payment of all fees and expenses in connection with the
preparation and filing of any registration statement and prospectus covering the
issue and sale of shares, and the registration and qualification of shares for
sale with the Securities and Exchange Commission and in the various states,
including registering the Fund as a broker or dealer. The Fund will also pay the
fees and expenses of preparing, printing and mailing prospectuses annually to
existing shareholders and any notice, proxy statement, report, prospectus or

8
<PAGE>

other communication to shareholders of the Fund, printing and mailing
confirmations of purchases of shares, any issue taxes or any initial transfer
taxes, a portion of toll-free telephone service for shareholders, wiring funds
for share purchases and redemptions (unless paid by the shareholder who
initiates the transaction), printing and postage of business reply envelopes and
a portion of the computer terminals used by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or reports
prepared for its use in connection with the offering of the shares, and
preparing, printing and mailing any other literature or advertising in
connection with the offering of the shares to the Participating Insurance
Companies.

The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under Federal and state
laws, a portion of the toll-free telephone service and of computer terminals,
and of any activity which is primarily intended to result in the sale of shares
issued by the Fund, unless a Plan pursuant to Rule 12b-1 under the 1940 Act, as
amended, is in effect which provides that the Fund shall bear some or all of
such expenses.

As agent, the Distributor currently offers shares of the Portfolio continuously
to the separate accounts of Participating Insurance Companies in all states in
which it is registered or where permitted by applicable law. The underwriting
agreement provides that the Distributor accepts orders for shares at net asset
value, as no sales commission or load is charged. The Distributor has made no
firm commitment to acquire shares of the Fund.

NOTE:

Although the Fund does not currently have a 12b-1 Plan and shareholder approval
would be required in order to adopt one, the underwriting agreement provides
that the Fund will also pay those fees and expenses permitted to be paid or
assumed by the Fund pursuant to a 12b-1 Plan, if adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement, and the Fund or a third party will pay those fees and expenses not
specifically allocated to the Distributor in the underwriting agreement.

- --------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
The separate accounts of the Participating Insurance Companies place orders to
purchase and redeem shares of the Portfolio based on, among other things, the
amount of premium payments to be invested and surrender and transfer requests to
be effected on that day pursuant to VA contracts and VLI policies. Orders
received by the Fund or its agent are effected on days on which the New York
Stock Exchange (the "Exchange") is open for trading. For orders received before
the close of regular trading on the Exchange (normally 4 p.m., eastern time),
such purchases and redemptions of the shares of the Portfolio are effected at
the net asset value per share determined as of the close of regular trading on
the Exchange on that same day (see "NET ASSET VALUE"). Payment for redemptions
will be made by State Street Bank and Trust Company on behalf of the Fund and
the Portfolio within seven days thereafter. No fee is charged the shareholders
when they redeem Portfolio shares.

The Fund may suspend the right of redemption of shares of the Portfolio and may
postpone payment for any period: (i) during which the Exchange is closed, other
than customary weekend and holiday closings or during which trading on the
Exchange is restricted; (ii) when the Securities and Exchange Commission
determines that a state of emergency exists which may make payment or transfer
not reasonably practicable; (iii) as the Securities and Exchange Commission may
by order permit for the protection of the security holders of the Fund; or (iv)
at any time when the Fund may, under applicable laws and regulations, suspend
payment on the redemption of its shares.

Should any conflict between VA contract and VLI policy holders arise which would
require that a substantial amount of net assets be withdrawn from the Fund,
orderly portfolio management could be disrupted to the potential detriment of
such contract and policy holders.

- --------------------------------------------------------------------------------
NET ASSET VALUE

- --------------------------------------------------------------------------------
Scudder Fund Accounting Corporation, a wholly-owned subsidiary of the Adviser,
determines net asset value per share as of the close of regular trading on the
Exchange, normally 4 p.m., eastern time, on each day the Exchange is open for
trading. Net asset value per share is calculated for purchases and redemptions
for the Portfolio by dividing the current market value of total Portfolio
assets, plus other assets, less all liabilities, by the total number of shares
outstanding.

9
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time, quotations of the Portfolio's total return may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Total return figures are based on historical performance of the
Portfolio and show the performance of a hypothetical investment and are not
intended to indicate future performance. The total return of the Portfolio
refers to return assuming an investment has been held in the Portfolio for one
year, five years and for the life of the Portfolio (the ending date of which
will be stated). The total return quotations may be expressed in terms of
average annual or cumulative rates of return for all periods quoted. Average
annual total return refers to the average annual compound rate of return of an
investment in the Portfolio. Cumulative total return represents the cumulative
change in value of an investment in the Portfolio. Both will assume that all
dividends and capital gains distributions were reinvested. Total return for the
Portfolio will vary based on, among other things, changes in market conditions
and the level of the Portfolio's expenses.

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

VALUATION OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------

An exchange-traded equity security (not subject to resale restrictions) is
valued at its most recent sale price as of the close of regular trading on the
Exchange on each day the Exchange is open for trading. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation. An unlisted equity security which is traded
on the NASDAQ system is valued at the most recent sale price or, if there are no
such sales, the security is valued at the high or "inside" bid quotation
supplied through such system. Debt securities, other than short-term securities,
are valued at prices supplied by the Fund's pricing agent. Short-term securities
with remaining maturities of sixty days or less are valued by the amortized cost
method, which the Trustees believe approximates market value. Foreign currency
forward contracts are valued at the value of the underlying currency at the
prevailing currency exchange rate. Securities for which current market
quotations are not readily available are valued at fair value as determined in
good faith by the Trustees, although the actual calculations may be made by
persons acting pursuant to the direction of the Trustees. Please refer to the
section entitled "NET ASSET VALUE" in the Fund's Statement of Additional
Information for more information concerning valuation of portfolio securities.

- --------------------------------------------------------------------------------
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------

The Internal Revenue Code of 1986 (the "Code") provides that each portfolio of a
series fund is to be treated as a separate taxpayer. Accordingly, the Portfolio
intends to qualify as a separate regulated investment company under Subchapter M
of the Code.

The Portfolio intends to comply with the diversification requirements of Code
Section 817(h). By meeting this and other requirements, the Participating
Insurance Companies, rather than the holders of VA contracts and VLI policies,
should be subject to tax on distributions received with respect to Portfolio
shares. For further information concerning federal income tax consequences for
the holders of the VA contracts and VLI policies, such holders should consult
the prospectus used in connection with the issuance of their particular
contracts or policies.

As a regulated investment company, the Portfolio generally will not be subject
to tax on its ordinary income and net realized capital gains to the extent such
income and gains are distributed in conformity with applicable distribution
requirements under the Code to the separate accounts of the Participating
Insurance Companies which hold its shares. Distributions of income and the
excess of net short-term capital gain over net long-term capital loss will be
treated as ordinary income and distributions of the excess of net long-term
capital gain over net short-term capital loss will be treated as long-term
capital gain by the Participating Insurance Companies. Participating Insurance
Companies should consult their own tax advisers as to whether such distributions
are subject to federal income tax if they are retained as part of policy
reserves.

The Portfolio will declare and distribute dividends from its net investment
income, if any, quarterly, in January, April, July and October. The Portfolio
will distribute its capital gains, if any, within three months of the fiscal

10
<PAGE>
year-end. Dividends declared in October, November or December with a record date
in such a month will be deemed to have been received by shareholders on December
31 if paid during January of the following year. All distributions will be
reinvested in shares of the Portfolio unless an election is made on behalf of a
separate account to receive distributions in cash. Participating Insurance
Companies will be informed about the amount and character of distributions from
the Portfolio for federal income tax purposes.

- --------------------------------------------------------------------------------
SHAREHOLDER COMMUNICATIONS
- --------------------------------------------------------------------------------

Owners of policies and contracts issued by Participating Insurance Companies for
which shares of the Portfolio are the investment vehicle will receive from the
Participating Insurance Companies unaudited semi-annual financial statements and
audited year-end financial statements certified by the Fund's independent public
accountants. Each report will show the investments owned by the Fund and the
market values thereof as determined by the Trustees and will provide other
information about the Fund and its operations.

Participating Insurance Companies with inquiries regarding the Fund may call the
Fund's underwriter, Scudder Investor Services, Inc. at 1-617-295-1000 or write
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

FUND ORGANIZATION AND SHAREHOLDER INDEMNIFICATION

The Fund was organized in the Commonwealth of Massachusetts as a "Massachusetts
business trust" on March 15, 1985. The Fund's shares of beneficial interest are
presently divided into six separate series. Additional series may be created
from time to time.

Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust contains an express disclaimer of shareholder
liability in connection with the Fund property or the acts, obligations or
affairs of the Fund. The Declaration of Trust also provides for indemnification
out of the Fund property of any shareholder held personally liable for the
claims and liabilities to which a shareholder may become subject by reason of
being or having been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations. The Trustees
believe that, in view of the above, the risk of personal liability of
shareholders is remote.

OTHER INFORMATION

The activities of the Fund are supervised by the Trustees.

Although the Fund does not intend to hold annual meetings, shareholders of the
Fund have certain rights, as set forth in the Declaration of Trust of the Fund,
including the right to call a meeting of shareholders for the purpose of voting
on the removal of one or more Trustees. Shareholders have one vote for each
share held. Fractional shares have fractional votes.

As of December 31, 1994, Aetna Life Insurance and Annuity Company owned 9.58%,
American Skandia Life Assurance Corporation owned 4.53%, AUSA Life Insurance
Company owned 0.08%, Banner Life Insurance Company owned 0.53%, Charter National
Life Insurance Company owned 45.29%, Fortis Benefits Life Insurance Company
owned 0.05%, Intramerica Life Insurance Company owned 3.59%, Lincoln Benefit
Life Insurance Company owned 0.04%, Mutual of America Life Insurance Company
owned 19.96%, Paragon Life Insurance Company owned 0.03%, Providentmutual Life
and Annuity Company of America owned 0.18%, Safeco Life Insurance Companies
owned 0.55%, The Union Central Life Insurance Company owned 15.52% and United of
Omaha owned 0.07% of the Fund's outstanding shares.

The Portfolio has a December 31 fiscal year end.

Portfolio securities of the Fund are held separately, pursuant to a custodian
agreement, by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as custodian.

12
<PAGE>

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, is
the transfer and dividend paying agent for the Fund.

The firm of Dechert Price & Rhoads, Boston, Massachusetts, is counsel for the
Fund.

The Fund's Statement of Additional Information and this prospectus omit certain
information contained in the Registration Statement which the Fund has filed
with the Securities and Exchange Commission under the Securities Act of 1933,
and reference is hereby made to the Registration Statement and its amendments,
for further information with respect to the Fund and the securities offered
hereby. The Registration Statement and its amendments, are available for
inspection by the public at the Securities and Exchange Commission in
Washington, D.C.

<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------

David B. Watts*
President and Trustee

Dr. Kenneth Black, Jr.
Trustee; Regents' Professor Emeritus
of Insurance, Georgia State University

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dr. J. D. Hammond
Trustee; Dean, Smeal College of Business
Administration, Pennsylvania State University

Daniel Pierce*
Vice President and Trustee

Pamela A. McGrath*
Vice President and Treasurer

Thomas S. Crain*
Vice President

Jerard K. Hartman*
Vice President

Richard A. Holt*
Vice President

Thomas W. Joseph*
Vice President

David S. Lee*
Vice President

Steven M. Meltzer*
Vice President

Edward J. O'Connell*
Vice President and Assistant Treasurer

Randall K. Zeller*
Vice President

Thomas F. McDonough*
Secretary

Kathryn L. Quirk*
Vice President and Assistant Secretary

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

<PAGE>
<TABLE>
<S> <C>
FORM OF GROUP PROXY

PROXY SOLICITED ON BEHALF OF THE BOARD OF MANAGERS OF VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

The undersigned hereby constitutes and appoints Alfred W. Kennon, David A. Leonard, and Mary M. Wilson, and each of them, with full
power of substitution in each of them, acting by a majority of them present and voting (or if only one of them is present and
voting, then by that one), the attorneys and proxies of the undersigned, to cast the number of votes that the undersigned Contract
Owner is entitled to vote at the Annual Meeting of Contract Owners of Variable Annuity Fund I of Southwestern Life ("Separate
Account") to be held on July 28, 1995 and at any adjournment or adjournments thereof (the "Meeting"), in connection with the
following proposals.

(1) Approval of the conversion of the Separate Account from an open-end management company to a unit investment trust.

Number of Votes FOR __________ Number of votes AGAINST __________ Number of votes ABSTAINING __________

(2) Subject to approval of proposal (1), approval of the sale and exchange of substantially all of the assets of the Separate
Account and the purchase of shares of beneficial interest in the Capital Growth Portfolio of Scudder Variable Life
Investment Fund pursuant to an Asset Transfer Agreement dated _____________________, 1995.

Number of Votes FOR __________ Number of votes AGAINST __________ Number of votes ABSTAINING __________

(3) Election of Board of Managers
FOR the nominees listed WITHHOLD authority to vote for nominees listed
Number of Votes Number of Votes

______________________________________________ Lynn Craft ______________________________________________
______________________________________________ John T. Hull ______________________________________________
______________________________________________ Boone Powell, Jr. ______________________________________________
______________________________________________ Bill J. Priest ______________________________________________

(4) Ratification of the selection of Coopers & Lybrand L.L.P. as independent auditor for the fiscal year ending December 31,
1995.

Number of Votes FOR __________ Number of votes AGAINST __________ Number of votes ABSTAINING __________

(5) In the discretion of those exercising the proxies at the Meeting, upon such other matters as may be brought properly before
the Meeting.

This proxy, if in proper form and not revoked, will be voted as specified by the undersigned. VOTES FOR WHICH INSTRUCTIONS HAVE BEEN
RECEIVED MUST BE CAST BY THE CONTRACT OWNER IN ACCORDANCE WITH SUCH INSTRUCTIONS. VOTES FOR WHICH INSTRUCTIONS HAVE NOT BEEN
RECEIVED MUST BE CAST BY THE CONTRACT OWNER IS THE SAME PROPORTION AS VOTES FOR WHICH INSTRUCTIONS HAVE BEEN RECEIVED. HOWEVER, IF
THE CONTRACT OWNER DOES NOT CAST ALL VOTES TO WHICH IT IS ENTITLED, THE VOTES NOT CAST WILL BE VOTED FOR EACH OF THE PROPOSALS IN
(1), (2) AND (4) ABOVE AND FOR THE ELECTION OF ALL NOMINEES REFERRED TO IN (3) ABOVE. ON ALL OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING, THIS PROXY WILL BE VOTED IN THE DISCRETION OF THOSE EXERCISING THIS PROXY. See the accompanying Proxy Statement
for discretionary authority, if any of the above named nominees fails to stand for election at the Meeting.

PLEASE VOTE, DATE, SIGN, AND PROMPTLY RETURN THIS PROXY. Please sign your
name legibly exactly as it appears hereon. Each joint owner should sign. If
executed by a corporation, please sign full corporate name by a duly
authorized officer. Attorneys, executors, administrators, trustees, ____________________________________________________
guardians, etc. should give full title as such.

DATED: ____________________________________________________, 1995 ____________________________________________________
Authorized Signature of Contract Owner(s)

<PAGE>
FORM OF VOTING INSTRUCTIONS

SOLICITATION ON BEHALF OF THE BOARD OF MANAGERS OF VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

The undersigned individual participant under a group variable annuity contract or annuitant under an individual variable annuity
contract hereby instructs the Contract Owner of such variable annuity contract to cast the number of votes that the undersigned is
entitled to vote at the Annual Meeting of Contract Owners of Variable Annuity Fund I of Southwestern Life ("Separate Account") to be
held on July 28, 1995, and at any adjournment or adjournments thereof (the "Meeting"), in connection with the following proposals.

(1) Approval of the conversion of the Separate Account from an open-end management company to a unit investment trust.

[] FOR [] AGAINST [] ABSTAIN

(3) Election of Board of Managers

[] FOR all nominees listed (except as [] WITHHOLD authority to vote for all nominees listed
marked to the contrary below)

Lynn Craft, John T. Hull, Boone Powell, Jr., and Bill J. Priest

INSTRUCTION: To withhold authority to vote for any individual nominees, write the name(s) of each such nominee in the space
provided below.

___________________________________________________________________________________________________________________________

(4) Ratification of the selection of Coopers & Lybrand L.L.P. as independent auditor for the fiscal year ending December 31,
1995.

[] FOR [] AGAINST [] ABSTAIN

(5) In the discretion of those exercising the proxies at the Meeting, upon such other matters as may be brought properly before
the Meeting.

These voting instructions, if in proper form and not revoked, will be voted by the Contract Owner as specified by the undersigned.
IF NO CHOICE IS SPECIFIED, EACH VOTE ENTITLED TO BE DIRECTED BY THE UNDERSIGNED WILL BE CAST FOR THE PROPOSALS IN (1), (2) AND (4)
AND FOR THE ELECTION OF THE NOMINEES REFERRED TO IN (3) ABOVE. VOTES FOR WHICH INSTRUCTIONS HAVE NOT BEEN RECEIVED MUST BE CAST BY
THE CONTRACT OWNER IN THE SAME PROPORTION AS VOTES FOR WHICH INSTRUCTIONS HAVE BEEN RECEIVED. ON ALL OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE MEETING, THE PROXIES WILL BE VOTED IN THE DISCRETION OF THOSE EXERCISING THE PROXIES. See the accompanying Proxy
Statement for discretionary authority, if any of the above named nominees fails to stand for election at the Meeting.

PLEASE VOTE, DATE, SIGN, AND PROMPTLY RETURN THIS VOTING INSTRUCTION FORM.
Please sign your name legibly exactly as it appears hereon. Each joint
owner should sign. Attorneys, executors, administrators, trustees, ____________________________________________________
guardians, etc. should give full title as such.

DATED: ____________________________________________________, 1995 ____________________________________________________
Signature(s)

<PAGE>

FORM OF INDIVIDUAL PROXY

PROXY SOLICITED ON BEHALF OF THE BOARD OF MANAGERS OF VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

The undersigned hereby constitutes and appoints Alfred W. Kennon, David A. Leonard, and Mary M. Wilson, and each of them, with full
power of substitution in each of them, acting by a majority of them present and voting (or if only one of them is present and
voting, then by that one), the attorneys and proxies of the undersigned, to cast the number of votes that the undersigned Contract
Owner is entitled to vote at the Annual Meeting of Contract Owners of Variable Annuity Fund I of Southwestern Life ("Separate
Account") to be held on July 28, 1995, and at any adjournment or adjournments thereof (the "Meeting"), in connection with the
following proposals.

(1) Approval of the conversion of the Separate Account from an open-end management company to a unit investment trust.

[] FOR [] AGAINST [] ABSTAIN

(3) Election of Board of Managers

[] FOR all nominees listed (except as [] WITHHOLD authority to vote for all nominees listed
marked to the contrary below)

Lynn Craft, John T. Hull, Boone Powell, Jr., and Bill J. Priest

INSTRUCTION: To withhold authority to vote for any individual nominees, write the name(s) of each such nominee in the space
provided below.

___________________________________________________________________________________________________________________________

(4) Ratification of the selection of Coopers & Lybrand L.L.P. as independent auditor for the fiscal year ending December 31,
1995.

[] FOR [] AGAINST [] ABSTAIN

(5) In their discretion, upon such other matters as may be brought properly before the Meeting.

This proxy, if in proper form and not revoked, will be voted as specified by the undersigned. IF NO CHOICE IS SPECIFIED, THIS PROXY
WILL BE VOTED FOR THE PROPOSALS IN (1), (2) AND (4) ABOVE, AND FOR THE ELECTION OF ALL NOMINEES REFERRED TO IN (3) ABOVE, ON ALL
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED IN THE DISCRETION OF THOSE EXERCISING THIS PROXY.
See the accompanying Proxy Statement for discretionary authority, if any of the above named nominees fails to stand for election
at the Meeting.
(continued on reverse side)
<PAGE>

(Continued from reverse side. READ AND COMPLETE REVERSE SIDE BEFORE SIGNING.)

PLEASE VOTE, DATE, SIGN, AND PROMPTLY RETURN THIS PROXY.
Please sign your name legibly exactly as it appears hereon. Each joint
owner should sign. If executed by a corporation, please sign full corporate name
by a duly authorized officer. Attorneys, executors, administrators, trustees, ___________________________________________________
guardians, etc. should give full title as such.

DATED: ____________________________________________________, 1995 ____________________________________________________
Authorized Signature of Contract Owner(s)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
----
<S> <C>
Glossary of Special Terms.................................................................................................2
Synopsis..................................................................................................................2
Introduction.....................................................................................................2
Forms of Organization............................................................................................2
Proposed Conversion..............................................................................................3
Proposed Exchange................................................................................................3
Investment Objectives and Policies of the Separate Account.......................................................3
Investment Objectives and Policies of Growth Portfolio...........................................................4
Principal Risk Factors...........................................................................................4
Investment Management Fees and Expenses..........................................................................4
Distribution of Shares...........................................................................................8
Expense Ratios...................................................................................................8
Purchase and Redemption Information .............................................................................9
Tax Consequences.................................................................................................9
Other Matters....................................................................................................9
Principal Risk Factors ...................................................................................................9
Approval of Conversion (Proposal No. 1)..................................................................................11
Approval of Exchange (Proposal No. 2) ...................................................................................12
Description of Proposed Exchange ...............................................................................12
Reasons for and Purposes of Exchange and Conversion.............................................................13
The Continuing Separate Account.................................................................................14
Supplementary Information - Selected Accumulation Unit Data and Ratios (Separate Account).......................14
Financial Highlights (Scudder Fund).............................................................................16
Accumulation and Annuity Unit Values ...........................................................................16
Expenses........................................................................................................17
Management Fees.................................................................................................18
Portfolio Management............................................................................................19
Brokerage.......................................................................................................19
Deduction for Sales and Other Expenses .........................................................................20
Comparison of Investment Objectives and Policies ...............................................................20
Capitalization and Historic Performance ........................................................................22
Federal Tax Consequences of Transaction.........................................................................23
Further Information About Scudder Fund .........................................................................24
Description of Scudder Fund Shares to be Issued.................................................................24
Voting of Growth Portfolio Shares to be Held
by the Continuing Account .....................................................................................24
Additional Information About Growth Portfolio and the Separate Account...................................................26
Election of Managers (Proposal No. 3)....................................................................................26
Ratification of Independent Auditor (Proposal No. 4).....................................................................27
Management of the Separate Account.......................................................................................28
Executive Officers..............................................................................................28
Executive Compensation..........................................................................................28
Principal Executive Officers of SLC Financial...................................................................28
Information Pertaining to Investment Advisory Services...................................................................29
Investment Adviser..............................................................................................29
Investment Advisory Agreement...................................................................................29
Allocation of Brokerage Commissions on Portfolio Transactions...................................................30
Distributor.....................................................................................................31
Separate Account Administration and Mortality Expense Guarantee.................................................31
Voting Information ......................................................................................................31
Security Ownership .............................................................................................32
Miscellaneous............................................................................................................34
Availability of Other Information ..............................................................................34
Interest of Certain Persons.....................................................................................34
Financial Statements............................................................................................34
<PAGE>
Legal Matters ..................................................................................................34
Transfer Agent and Custodians...................................................................................35
Annual Report and Contract Owner Proposals...............................................................................35
Other Matters............................................................................................................35
Financial Statements of SLC Financial Services, Inc......................................................................36
</TABLE>

Appendix I, Chart of Affiliates of Southwestern Life Insurance Company
Exhibit A, Asset Transfer Agreement
Exhibit B, Prospectus of Variable Annuity Fund I of Southwestern Life - Dated
May 10, 1995
Exhibit C, Prospectus of Scudder Variable Life Investment Fund - Dated
May 1, 1995

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

Variable Annuity Fund I of Southwestern Life
Scudder Variable Life Investment Fund

Transfer of the assets of in exchange for shares of

VARIABLE ANNUITY FUND I CAPITAL GROWTH PORTFOLIO
of SOUTHWESTERN LIFE

(a separate account of (a series of
SOUTHWESTERN LIFE INSURANCE COMPANY) SCUDDER VARIABLE LIFE INVESTMENT FUND)

500 North Akard Two International Place
Dallas, Texas 75201-3320 Boston Massachusetts 02110-4103
Telephone: 1-214-954-7220 Telephone: 1-617-295-1000

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Proxy Statement/Prospectus dated June 19, 1995 relating
to the proposed conversion of Variable Annuity Fund I of Southwestern Life into
a unit investment trust investing solely in shares of the Capital Growth
Portfolio of Scudder Variable Life Investment Fund. A copy of that Proxy
Statement/Prospectus, dated June 19, 1995, may be obtained without charge by
writing to Southwestern Life Insurance Company, P. O. Box 2699, Dallas, Texas
75221-9977, or by calling 1-800-468-3863, extension 7220.

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
----
<S> <C>
Additional Information About Scudder Variable
Life Investment Fund ............................................................................................2

Additional Information About Variable Annuity Fund I
of Southwestern Life ............................................................................................2

Financial Information
The Separate Account...............................................................................(See Exhibit A)
Scudder Fund.......................................................................................(See Exhibit B)

Exhibit A - Statement of Additional Information for
Variable Annuity Fund I of Southwestern Life .....................................................................

Exhibit B - Statement of Additional Information for
Scudder Variable Life Investment Fund ............................................................................
</TABLE>

The date of this Statement of Additional Information is June 19, 1995.
<PAGE>
ADDITIONAL INFORMATION ABOUT SCUDDER VARIABLE LIFE INVESTMENT FUND

Additional information about Scudder Variable Life Investment Fund
("Scudder Fund") is incorporated herein by reference to the current Statement of
Additional Information for Scudder Fund dated May 1, 1995, attached hereto as
Exhibit B.

ADDITIONAL INFORMATION ABOUT VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

Additional information about Variable Annuity Fund I of Southwestern Life
(the "Separate Account") is incorporated herein by reference to the current
Statement of Additional Information for the Separate Account dated May 10, 1995,
attached hereto as Exhibit A.

FINANCIAL INFORMATION

The Separate Account

Audited financial statements for the Separate Account for the period ending
December 31, 1994, appear in this Statement of Additional Information
as a part of Exhibit A.

Scudder Fund

Audited financial statements for the Growth Portfolio for periods ending
December 31, 1994, appear later in this Statement of Additional Information as a
part of Exhibit B.

<PAGE>
EXHIBIT A

VARIABLE
ANNUITY FUND I
OF SOUTHWESTERN LIFE

Southwestern Life Insurance Company
P.O. Box 2699
Dallas, Texas 75221-9917

STATEMENT OF ADDITIONAL INFORMATION

May 10, 1995

Philadelphia Life Asset Planning Company
400 Market Street, 11th Floor
Philadelphia, Pennsylvania 19106
(Principal Underwriter)

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the prospectus for Variable Annuity Fund I of
Southwestern Life also dated May 10, 1995. A copy of the prospectus may be
obtained by writing to Southwestern Life Insurance Company at the above address
or by calling:

1-800-792-4368

<PAGE>

TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION

Page
General Information 2
Investment Restrictions and Policies 3
Management 6
Investment Advisory and Other Service 9
Brokerage Allocation 12
Purchase and Pricing of Contracts 13
Valuation of Assets 13
Valuation of Units 14
Illustration of Calculation of Net Investment Factor 15
Illustration of Calculation of New Accumulation Unit Value 15
Illustration of Calculation of New Annuity Unit Value 15
Underwriter 15
Annuity Payments 16
Illustration of Calculation of Annuity Payments 17
Voting Rights 17
Experience Rating Credits 18
State Regulation 18
Safekeeping of Securities 19
Legal Opinions 19
Accountants 19
Financial Statements 19

GENERAL INFORMATION

Southwestern Life Insurance Company ("Southwestern") is a wholly-owned
subsidiary of SWL Holding Corporation, an insurance holding company, which in
turn is a wholly-owned subsidiary of Southwestern Life Corporation ("SLC",
formerly known as I.C.H. Corporation), an insurance holding company. Variable
Annuity Fund I of Southwestern Life ("Separate Account") is registered with the
Securities and Exchange Commission ("SEC") as a diversified open-end management
investment company under the Investment Company Act of 1940 ("1940 Act").
Registration with the SEC does not involve supervision of the management or
investment practices or policies of the Separate Account by the SEC.
Philadelphia Life Asset Planning Company ("PLAPCO") is registered as a
broker-dealer under the Securities Exchange Act of 1934 and acts as the
principal underwriter of the contracts offered by the prospectus (see
"Underwriter," page 15). SLC Financial Services, Inc. ("SLC Financial", formerly
known as I.C.H. Financial Services, Inc.) is registered With the SEC as an
investment adviser under the Investment Advisers Act of 1940 and acts as the
investment adviser to the Separate Account (see "Investment Advisory and Other
Services," page 9).

2
<PAGE>

The assets of the Separate Account are not chargeable with liabilities
arising out of any other business that Southwestern may conduct. Accordingly,
the assets of the Separate Account are held for the exclusive benefit of
participants in, and persons entitled to payment under, the Contract and other
contracts under which net purchase payments are placed in the Separate Account
to provide benefits varying in accordance with the investment experience of the
Separate Account. Southwestern also participates in the Separate Account as a
result of the initial capital it contributed to the Separate Account at the time
the Separate Account was organized. The percentage of the total assets of the
Separate Account attributable to Southwestern's initial capital contribution was
11.22% as of April 7, 1995. For a further description of Southwestern and the
Separate Account, see the prospectus.

INVESTMENT RESTRICTIONS AND POLICIES

In accordance with the provisions of the 1940 Act, fundamental policies
adopted by the Separate Account may not be changed without approval of at least
a majority of the outstanding accumulation units of the Separate Account or of
67% of the accumulation units represented at a meeting of Contract Owners at
which the holders of 50% or more of the outstanding Separate Account
accumulation units are represented. Except as noted below, the Separate Account
may not as a matter of fundamental investment policy:

(1) in regard to 75% of its total assets:

(a) purchase any security if, as a result of such purchase,
more than 5% of the value of the Separate Account's total
assets would be invested in the securities of a single issuer,
except securities issued or guaranteed by the United States
Government or its agencies or instrumentalities; or

(b) purchase any security if, as a result of such purchase,
more than 10% of the outstanding voting securities of any
class of any issuer would be held by the Separate Account (for
this purpose, all indebtedness of any issuer shall be deemed a
single class), except securities issued or guaranteed by the
United States Government or any of its agencies or
instrumentalities.

(2) purchase any security if, as a result of such purchase, 25% or more
of the value of the Separate Account's total assets would be invested in the
securities of issuers having their principal business activities in the same
industry, except this limitation does not apply to securities issued or
guaranteed by the United States Government or any of its agencies or
instrumentalities.

3
<PAGE>

(3) underwrite securities issued by other persons; however, such policy
will not limit the Separate Account's right to purchase securities for
investment where it may be deemed an "underwriter" of such securities within the
meaning of the Securities Act of 1933 ("Securities Act") upon their subsequent
disposition. Such restricted securities are not freely marketable and therefore
may be considered illiquid. (See restriction (10) for the limitation on
investment in illiquid securities.) If registration of any such securities under
the Securities Act is deemed advisable, the Separate Account will endeavor to
have the issuer register upon request and pay the underwriting expenses
including the cost of such registration. If this is not possible, the Separate
Account will pay such expenses.

(4) purchase securities with legal or contractual restrictions on
resale (excluding repurchase agreements), except that the Separate Account may
purchase debt securities in private placements within the limits imposed in
restriction (7) below pertaining to loans and restriction (10) for the
limitation on investment in illiquid securities.

(5) purchase or sell real estate.

(6) purchase or sell commodities or commodity contracts including
futures contracts.

(7) make loans, except the Separate Account may from time to time
invest in bonds, debentures and other evidences of indebtedness of a type
customarily purchased by institutional investors. (See, however, restriction
(10) for the limitation on investment in illiquid securities.) The purchase of a
publicly distributed debt security is not considered the making of a loan.

(8) borrow money, except from banks or other persons for temporary
purposes where the aggregate amount borrowed shall not exceed 5% of the value of
the assets of the Separate Account valued at the time of the loan (in general, a
loan will be regarded as temporary if it is repaid within 60 days and is not
extended or renewed).

(9) issue senior securities, including reverse repurchase agreements or
firm or standby commitment agreements, except as permitted by its policy
relating to borrowing.

(10) purchase any security if, as a result of such purchase, more than
10% of the value of the Separate Account's total assets would be invested in
illiquid securities (including repurchase agreements and time deposits maturing
in more than seven days).

<PAGE>

If through market action the percentage limitations on the investments
specified in Item 1, 2, 3 or 7 should be exceeded, the Separate Account
will not be required to reduce such investments.

The investment policies of the Separate Account discussed below may be
changed by the Separate Account's Board of Managers without a vote of Contract
Owners:

(1) No more than $25,000 or 5% of the Separate Account's assets,
whichever is greater, shall be invested in any one corporation issuing common
capital stock which is listed on or admitted to trading in a securities exchange
located in the United States, or which is publicly held and traded in the
over-the-counter market as defined by the Texas State Board of Insurance and as
to which market quotations have been available.

(2) The Separate Account will not invest in the securities of a company
for the purpose of exercising control or management.

(3) The Separate Account will not make short sales of securities or
purchase securities on margin, except for such short-term credits as may be
necessary for the clearance of purchases of portfolio securities.

(4) The Separate Account will not purchase warrants if, by reason of
such purchase, (a) more than 5% of its net assets (taken at market value) will
be invested in warrants valued at the lower of cost or market or (b) more than
2% of its net assets will then be invested in warrants, valued as indicated
above, which are not listed on the New York or American Stock Exchange. (For the
purpose of the foregoing calculations, warrants acquired by the Separate Account
in units with or attached to securities will be deemed to be without value and
therefore not included within the limitations.) Warrants offer an opportunity
for profit if on the date the warrant is exercised, the market value of the
security to be acquired exceeds the exercise price. If, on the other hand, the
market price of the security does not rise above the exercise price of the
warrant or if the warrant is not sold before the expiration date, the
consideration paid for the warrant will be lost.

(5) The Separate Account will not purchase the securities of other
investment companies if as a result thereof, the Separate Account would own more
than 3% of the total outstanding voting stock of any one investment company,
more than 5% of the Separate Account's assets would be invested in any one
investment company, or more than 10% of the Separate Account's assets would be
invested in all investment companies. Purchases of such securities will be made
only in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission or as a
part of a merger, consolidation or plan of reorganization.

<PAGE>

If through market action the percentage limitations on the investments
specified in Item 1, 4 or 5 should be exceeded, the Separate Account
will not be required to reduce such investments.

The Separate Account does not own any restricted securities and has no
present plan to acquire any restricted securities. If the Separate Account buys
restricted securities, the Board of Managers will be required to value these
securities in good faith in determining the value of the assets of the Separate
Account. These valuations will be made on an individual basis in light of the
particular circumstances affecting each security, taking into account the cost
of the securities to the Separate Account, the market price of unrestricted
securities of the same issuer at the time of purchase, subsequent changes in
market price, potential expiration or release of restrictions affecting the
particular security and other relevant factors. A considerable period might
elapse between the time a decision is made to sell restricted securities and the
time when the Separate Account might be permitted to sell them publicly under an
effective registration statement or when the Separate Account might find a
suitable purchaser willing to accept the securities subject to restrictions. If
adverse market conditions develop during this period, the Separate Account might
not be able to obtain as favorable a price as that prevailing when the initial
decision to sell was made.

MANAGEMENT

The Separate Account is managed by a Board of Managers, and the affairs of
the Separate Account are conducted in accordance with Rules and Regulations
adopted by the Board of Managers. None of the members of the Board of Managers
or the Secretary to the Board of Managers is a Contract Owner or Participant
under a variable annuity Contract offered by the Separate Account. The Board of
Managers is elected annually by the Contract Owners.

Position
Name, held with Principal Occupations
Address Separate during the last five
and Age Account years and Directorships
---------- ------------ -----------------------

<S> <C> <C>
Lynn Craft Member of President and Chief Execu-
1601 Elm St. Board of tive Officer, Baptist Fou-
Suite 1700 Managers ndation of Texas
Dallas, Texas
75201-7241
Age: 52

<PAGE>

Position
Name, held with Principal Occupations
Address Separate during the last five
and Age Account years and Directorships
---------- ------------ -----------------------

John T. Hull* Member of Chief Financial Officer
500 N. Akard St. Board of (since 1994) of Southwestern
Dallas, Texas Managers Life Corporation and various
75201-7241 of its subsidiaries, includ-
Age: 51 ing Southwestern Life Insur-
ance Company. Executive Vice
President (since 1993) and
Treasurer (since 1983) of
Southwestern Life Corpora-
tion. From 1983 to 1993,
Senior Vice President and
Treasurer of Southwestern
Life Corporation and various
of its subsidiaries, in-
cluding Southwestern Life
Insurance Company. Direc-
tor, President and Treasur-
er, SLC Financial Services,
Inc. Director, Vice Presi-
dent and Treasurer, SWL
Holding Corporation

Alfred W. Kennon, President Formerly, Chief Pension and
Jr. and Annuity Associate, formerly
500 N. Akard St. Secretary Vice President-Annuities and
Dallas, Texas Qualified Plans Administra-
75201-7241 tion, and Vice President-
Age: 54 Pension Compliance and Re-
search, Southwestern Life
Insurance Company

Boone Powell, Jr. Member of President and Chief Execu-
3500 Gaston Ave. Board of tive Officer, Baylor Health
Dallas, Texas Managers Care System; Director,
75246 Abbott Laboratories; Direc-
Age: 58 tor, Comerica Bank-Texas

Bill J. Priest Chairman and Consultant to educational
7210 Twin Tree Ln. Member of institution and presidential
Dallas, Texas Board of search work; Chancellor
75214 Managers Emeritus, Dallas County Com-
Age: 77 munity College District;
Director, Comerica Bank-Texas

<PAGE>

Position
Name, held with Principal Occupations
Address Separate during the last five
and Age Account years and Directorships
---------- ------------ -----------------------

Betty M. Jobson Vice Presi- Investment Portfolio Manag-
4211 Norbourne dent and er, Fixed Income, Southwest-
Blvd. Treasurer ern Life Corporation; Vice
Louisville, President and Secretary, SLC
Kentucky Financial Services, Inc.;
40207 Director, SLC Financial Ser-
Age: 47 vices, Inc.

</TABLE>

* Indicates "interested person" of the Separate Account as defined in the 1940
Act. Mr. Hull has been appointed to fill the vacancy left by the resignation,
effective June 3, 1994, of Edward R. Mekeel, Jr.

The Board of Managers has a standing Executive Committee, whose members are
Dr. Priest and Messrs. Craft and Hull. The Executive Committee is authorized to
act on non-routine matters that may require action of the Board of Managers on
short notice.

The Board of Managers also has a standing Audit Committee, whose members
are Dr. Priest and Messrs. Craft and Powell. The Audit Committee is authorized
to review financial information for the purpose of assuring that the information
is accurate, timely and complete; to ascertain that effective accounting and
internal control systems exist; to oversee the audit function; and to provide a
communication link between the Separate Account's independent auditors and the
Board of Managers.

During 1994, the members of the Board of Managers who were not "interested
persons" received $8,700 as remuneration for their services as Managers, of
which $7,500 was paid by the Separate Account and $1,200 was paid by
Southwestern. Such payments are based on a $1,000 annual retainer plus $300 for
each Board or Committee meeting attended, per member. During 1994, the Board of
Managers held six meetings and the Audit Committee held one meeting.

The following table shows the compensation of the Managers of the Separate
Account for 1994 from the Separate Account. No executive officer or other
affiliated person of the Separate Account received compensation from the
Separate Account during 1994.

8
<PAGE>
<TABLE>
<CAPTION>

Pension or
Retirement
Benefits
Aggregate Accrued As Estimated Total
Compensation Part of Annual Compensation
Name of From the Separate Benefits from Separate
Person, Separate Account Upon Account Paid
Position Account (1) Expenses Retirement to Managers
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Lynn Craft, $2,500 -0- -0- $2,500
Manager

John T. Hull, -0- -0- -0- -0-
Manager

Boone Powell, $2,500 -0- -0- $2,500
Jr., Manager

Bill J. Priest, $2,500 -0- -0- $2,500
---------
(1) Messrs. Craft, Powell and Priest also received compensation from
Southwestern of $300, $600 and $300, respectively.
</TABLE>

As is noted in the prospectus for the Separate Account dated May __, 1995,
certain transactions that occurred on February 11, 1994, and are described in
detail below under "Investment Advisory and Other Services", at page 11, might
be deemed to have resulted in an "assignment" of the Separate Account's prior
advisory agreement with SLC Financial. If such an assignment had occurred, which
the Separate Account does not concede, the 1940 Act consequently might also
require that at least 75 percent of the members of the Separate Account's Board
of Managers be persons who are not "interested persons" of the Separate Account
as defined in the 1940 Act for a period of three years. The Separate Account
currently satisfies that requirement (and has since February 11, 1994), but
would not if the size of the Board of Managers was fixed at five members, with
the addition of a second "interested person" as a Manager, as has been customary
in recent years. For that reason, and because the proposed conversion of the
Separate Account into a unit investment trust would, if effected, result in the
dissolution of the Board of Managers, the Separate Account has no current plans
for the addition of a fifth Manager.

INVESTMENT ADVISORY AND OTHER SERVICES

SLC Financial, a direct wholly-owned subsidiary of SLC, is the investment
adviser for the Separate Account pursuant to an Investment Advisory Agreement
approved by Contract Owners on May 2, 1994. SLC Financial has previously
provided investment advisory services to the Separate Account pursuant to an
earlier investment advisory agreement ("Prior Agreement") effective May 1, 1987.

9
<PAGE>

SLC Financial was incorporated in Delaware on December 17, 1986 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
SLC Financial is located at 4211 Norbourne Blvd., Louisville, Kentucky 40207.
Information concerning the officers or Managers of the Separate Account who also
hold positions with SLC Financial is included in the table beginning on page 6
under "Management".

SLC Financial recommends to the Board of Managers of the Separate Account a
course of investment for the Separate Account's assets and portfolio subject to,
and in accordance with, the investment objectives and policies of the Separate
Account and any directions that the Board of Managers may issue from time to
time. In pursuance of the foregoing, SLC Financial makes recommendations for the
purchase and sale of specific portfolio securities. SLC Financial's
recommendations also include the manner in which the voting rights, rights to
consent to corporate action, and any other rights pertaining to portfolio
securities shall be exercised. SLC Financial renders regular reports to the
Separate Account at the periodic meetings of the Board of Managers and at such
other times as may be requested by the Board of Managers regarding the
recommendations that SLC Financial has made with respect to the investment of
the Separate Account's assets and the purchase and sale of portfolio securities.

Under the Investment Advisory Agreement, as was also the case under the
Prior Agreement, SLC Financial is paid a daily fee of .00089% (.325% on an
annual basis) of the net asset value of the Separate Account on each Valuation
Date. For the 1994 fiscal year, the Separate Account paid SLC Financial advisory
fees of $12,372. For the 1993 fiscal year, the Separate Account paid SLC
Financial advisory fees of $16,000. For the 1992 fiscal year, the Separate
Account paid SLC Financial advisory fees of $16,535. The Separate Account paid
no investment advisory fees from February 11, 1994 until May 2, 1994, the date
Contract Owners approved the Investment Advisory Agreement.

Investment decisions for the Separate Account are made independently from
those of SLC. Occasionally purchases or sales of the same security may be
contemplated at or about the same time by the Separate Account and SLC. If and
when it is decided that the purchase or sale orders should be combined, the
transactions will be averaged as to price and normally will be allocated as to
amount in accordance with the daily purchase and sale orders actually placed.
While in some instances combined orders could adversely affect the price of a
security, it is believed that the Separate Account's participation in such
transactions on balance will produce better net results for the Separate
Account.

Administrative services for the Separate Account and the Contracts are
provided by Southwestern. Such administrative services include, among other
things, salaries and travel expenses of home office officials and employees,

10
<PAGE>

rent, postage, telephone, legal fees, office equipment, stationery and other
office expenses. As compensation for the performance of administrative services,
the Contracts provide for the deduction of 3.0% from purchase payments to
reimburse Southwestern for administrative expenses. The deductions for
administrative expenses are designed only to reimburse Southwestern for its
actual expenses, and Southwestern does not expect to recover from these
deductions any amounts above its accumulated expenses in administering the
Contracts. These deductions do not cover (i) any taxes that might arise from
income and capital gains on the Separate Account or otherwise from the existence
of the Separate Account; (ii) fees and expenses of audit of the Separate
Account; or (iii) compensation and expenses of the members of the Board of
Managers and employees of the Separate Account who are not "interested persons"
(as that term is defined in the 1940 Act). These other expenses are borne by the
Separate Account other than taxes on income and capital gains (if any) as may be
attributable to Southwestern's initial capital contribution to the Separate
Account, which taxes will be borne by Southwestern. The cost of preparing and
printing annual or other amendments to the Separate Account's registration
statement, including prospectuses, is borne by Southwestern.

By virtue of direct and indirect stock ownership, SLC controls both
Southwestern and SLC Financial. As of March 18, 1994, SLC had issued and
outstanding 47,834,739 shares of its Common Stock, which were held of record by
approximately 52,000 stockholders. As of December 31, 1993, and prior to
February 11, 1994, SLC also had issued and outstanding a second class of common
equity security, Class B Common Stock. The Class B Common Stock carried special
voting rights in the election of directors of SLC, entitling its holders to
elect 75% of the directors of SLC. Subject to the special voting rights of the
Class B Common Stock, the SLC Common Stock, voting together with shares of SLC
Series 1984-A Preferred Stock (of which there were 541,563 shares outstanding),
collectively entitled their holders to elect the remaining directors of SLC.

Prior to February 11, 1994, Consolidated National Corporation ("CNC"),
CNC's subsidiary, Consolidated Fidelity Life Insurance Company ("CFLIC") and
Robert T. Shaw ("Shaw"), a majority stockholder of CNC, owned, collectively,
10,754,486 shares of SLC Common Stock; 100,000 shares of Class B Common Stock,
representing all of the outstanding shares of SLC Class B Common Stock; and all
of the outstanding shares of SLC Series 1984-A Preferred Stock. As a result of
those security holdings, therefore, Shaw, CNC and CFLIC held, prior to February
11, 1994, stock in the aggregate (1) presently entitling them to elect 75% of
SLC's directors; (2) presently entitling them to cast approximately 23.4% of the
votes for the election of the remaining 25% of SLC's directors; and (3)
representing approximately 25.3% of the common equity of SLC on a beneficial
ownership basis.

11
<PAGE>

On February 11, 1994, SLC repurchased from CNC, and canceled, the entire
outstanding issue of SLC Class B Common Stock, eliminating the special voting
rights represented by that class. On that same date, CNC and CFLIC sold, in the
aggregate, 4,677,243 shares of SLC Common Stock to Torchmark Corporation
("Torchmark"), a diversified insurance and financial services company
headquartered in Birmingham, Alabama, and 4,456,820 shares of SLC Common Stock
to Stephens Inc. ("Stephens"), an investment banking firm headquartered in
Little Rock, Arkansas. As a result of those transactions, SLC has outstanding
only one class of common equity security (the Common Stock), of which Torchmark
and Stephens, after giving effect to the above transactions, became the largest
stockholders, owning 9.8% and 9.7%, respectively, on a beneficial ownership
basis. As of that same date, as a result of the transactions, Shaw, CNC and
CFLIC collectively owned 1,620,423 shares of Common Stock and 541,563 shares of
Series 1984-A Preferred Stock, which entitled them to cast approximately 4.5% of
the votes for the election of SLC's directors and which represented
approximately 6.7% of the common equity interest in SLC on a beneficial
ownership basis. Effective June 30, 1994, SLC acquired from CFLIC all of the
outstanding shares of SLC's Series 1984-A Preferred Stock and Series 1987-B
Preferred Stock, and 620,423 shares of SLC's Common stock, all of which
securities have been retired by SLC. The SLC Common Stock currently has the
power to elect all of SLC's directors. CNC and certain of its affiliates, after
giving effect to the above transactions, owned approximately 2% of SLC's
outstanding Common Stock.

A representative of each of Torchmark and Stephens currently serves on
SLC's Board of Directors, and SLC has agreed that so long as either of Torchmark
or Stephens remains a 5% or greater shareholder of SLC, SLC will use its best
efforts to secure the election of a designee of such shareholder as a director
of SLC.

BROKERAGE ALLOCATION

Purchases and sales of securities for the Separate Account's portfolio
and the selection of broker-dealers to handle these transactions are effected by
SLC Financial. As a general matter, it is SLC Financial's policy to seek the
most favorable net security price consistent with efficient execution of orders.
Subject to that consideration, SLC Financial in selecting brokers to execute the
Separate Account's transactions gives consideration to the furnishing of
statistical data, research information and related services by brokers. SLC
Financial may pay a broker a commission in excess of that which another broker
might have charged for the same transaction because of the value of research
services provided by the broker.

Historically, most securities transactions for the Separate Account have
been effected on national securities exchanges. The commission rate on
transactions effected on exchanges is usually subject to negotiation with the

12
<PAGE>

broker. In the over-the-counter market, SLC Financial normally deals directly
with the principal market makers, unless in the opinion of SLC Financial equal
or better prices or executions can otherwise be obtained.

The Separate Account is not affiliated with any broker-dealer. SLC
previously had (but no longer has) an indirect financial interest in PLAPCO, the
principal underwriter of the Contracts. PLAPCO is a wholly-owned subsidiary of
Philadelphia Life Insurance Company. The address of PLAPCO is 400 Market Street,
11th Floor, Philadelphia, Pennsylvania 19106. PLAPCO receives no brokerage
commissions from the Separate Account. During the 1994 fiscal year, the
aggregate dollar amount of transactions involving the payment of commissions was
$244,621. During the 1993 fiscal year, the aggregate dollar amount of
transactions involving the payment of commissions was $823,885. During the 1992
fiscal year, the aggregate dollar amount of transactions involving the payment
of commissions was $685,877.

During 1994, 1993, and 1992, the Separate Account paid total brokerage
commissions to unaffiliated broker-dealers of $800, $2,100 and $1,100,
respectively. All of these amounts were allocated to brokerage firms that
provided investment research or other services. Such investment research and
other services included statistical and other factual information and advice as
to occasional transactions in specific securities, but did not include advice or
recommendations regarding the management of the Separate Account's portfolio.
SLC Financial may utilize information furnished by brokers in connection with
the Separate Account or one or more of other investment portfolios for which it
may act as investment adviser. The services received by SLC Financial from
broker-dealers are services that are furnished by broker-dealers to institutions
making substantial purchases or sales of securities, and the value of such
services has been taken into consideration in determining the fees for
investment advisory services.

PURCHASE AND PRICING OF CONTRACTS

The Separate Account no longer offers Contracts for sale, though it
continues to accept purchase payments on existing Contracts and to accept new
participants under existing group Contracts. For a description of the manner in
which the Contracts were offered in the past, including the method used to
determine the sales load, see the prospectus for the Separate Account.

VALUATION OF ASSETS

With the exceptions next noted, portfolio securities are valued at the last
sales price for securities listed on an exchange, or at the mean between the
current bid and asked prices for unlisted securities and listed securities in

13
<PAGE>

which there were no transactions during that day. In the event a listed security
is traded on more than one exchange, it is valued at the last sale price on the
exchange on which it is principally traded. However, debt securities (other than
short-term obligations) including listed issues, are valued on the basis of
valuations furnished by a pricing service that utilizes electronic data
processing techniques to determine valuations for normal institutional size
trading units of debt securities, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations are valued at cost. Securities
for which market quotations are not readily available, restricted securities,
and any other assets held by the Separate Account are valued at their fair value
as determined in good faith by the Board of Managers.

VALUATION OF UNITS

To determine unit values, the Contract applies an investment factor to the
previous valuation. To do this, a gross investment rate is determined from the
investment experience of the Separate Account on each valuation date.

The gross investment rate for any date is equal to (a) divided by (b) where
(a) is the Separate Account's investment income for the valuation date plus the
Separate Account's realized and unrealized capital gains for such date, minus an
amount not greater than the sum of:

1. the Separate Account's realized and unrealized capital losses for such
date,

2. an amount for fees and expenses of audit of the Separate Account, and

3. an amount for compensation and expenses of the Members of the Board of
Managers and employees of the Separate Account who are not "interested
persons" as defined in the 1940 Act.

and (b) is the value of the Separate Account for the immediately preceding
valuation date adjusted by amounts added to or subtracted from the Separate
Account on such date. Such gross investment rate may be either positive or
negative.

The net investment rate for any valuation date is equal to the gross
investment rate expressed in decimal form less a deduction of .0000363 (1.325%
on an annual basis) for investment advisory services and mortality and expense
undertakings.

The investment factor for a valuation date is the sum of 1.0000000 plus the
net investment rate for that date.

14
<PAGE>

ILLUSTRATION OF CALCULATION OF NET INVESTMENT FACTOR

Assume that on a given day the Separate Account's investment income was
$600, its net realized capital gains after expenses were $800 and its net
unrealized capital losses were $400, and that the value of the Separate Account
for the immediately preceding day adjusted by amounts added to or subtracted
from the Separate Account on such day was $5,000,000. The value of the assets of
the Separate Account for the current day before adding net purchase payments
received on that day would be $5,001,000 ($5,000,000 plus $600 plus $800, minus
$400) .

The gross investment rate for the current day would be equal to (a) $1,000
($600 plus $800, minus $400) divided by (b) $5,000,000, which produces 0.02000%
(.0002000). The net investment rate for the current day is determined by
deducting .00363% (.0000363) from the gross investment rate, which results in a
net investment rate of . 01637% (.0001637). The net investment factor for the
current day would be determined as the net investment rate plus 1.0000000,
equalling 1.0001637.

ILLUSTRATION OF CALCULATION OF NEW ACCUMULATION UNIT VALUE

Assume that the value of an accumulation unit for the immediately preceding
day was $1.135000. The value of an accumulation unit for the current day would
be equal to the value for the immediately preceding day (1.135000) multiplied by
the net investment factor for the current day (1.0001637) as calculated above,
which produces $1.135186.

ILLUSTRATION OF CALCULATION OF NEW ANNUITY UNIT VALUE

Assume that the value of an annuity unit for the immediately preceding day
was $1.100000 and that the assumed net investment rate built into the annuity
tables contained in a Contract is 3-1/2%. The value of an annuity unit for the
current day would be equal to the value for the immediately preceding day
($1.100000) multiplied by the product of the net investment factor for the
current day (1.0001637 as calculated above) multiplied by the appropriate factor
to neutralize the assumed investment rate (.999906 based on a 3-1/2% assumed net
investment rate) which produces $1.100077.

UNDERWRITER

PLAPCO is the principal underwriter for the Contracts. Although new
Contracts are no longer being issued, the Contracts have been sold primarily by
life insurance agents of Southwestern who have been properly licensed by the
appropriate state insurance departments and with the National Association of
Securities Dealers, Inc. ("NASD"). The commissions paid to such persons will

15
<PAGE>

bear a reasonable relationship to, and in the aggregate will be equivalent to or
less than, the deductions for sales expenses. Although commissions on purchase
payments made for the first contract year may exceed the sales expense
deductions from such purchase payments, any such excess commission will be paid
from Southwestern's general account. To the extent that overall sales expenses
exceed amounts deducted for sales loads, they will be borne by Southwestern.
PLAPCO receives no underwriting commissions from the Separate Account in
connection with the sale of the Contracts.

ANNUITY PAYMENTS

At commencement of the annuity period, a number of annuity units is
determined from the applicable annuity tables that reflect the age or year of
birth of the annuitant (and the joint annuitant, if applicable), the dollar
amount available to effect the annuity and the next determined applicable
annuity unit value. The number of annuity units so determined is credited to the
Participant's account and thereafter, the number of annuity units will not
change except in accordance with the provisions of the annuity form selected at
the commencement of the annuity period.

The amount of each subsequent annuity payment will be determined by
multiplying the number of annuity units credited to the Participant's account on
the due date of such payment by the applicable annuity unit value for that
date.

The annuity tables for the Contracts are based on the Group Annuity Table
for 1951 and an assumed net investment rate of 3-1/2% per year. Because the
Contracts provide for age adjustment based on the year of birth of the Annuitant
(and, if applicable, the joint Annuitant), a person's actual age when payments
commence may not be the same as the age used in determining the amount of the
first annuity payment.

The dollar amount available to be credited as annuity units for a
Participant's account under a Contract is determined on the basis set forth in
the plan and the Contract. If the plan permits such election, the Annuitant may
elect to receive all or a portion of his or her annuity payments on a
fixed-dollar basis rather than a variable basis. The accumulation units
applicable to the amount available will be withdrawn from the accumulation
account.

The first annuity payment under a Contract shall be due on the day the
Participant's account enters the annuity period. Subsequent payments shall be
due each month thereafter on the day corresponding to the day of the month of
the first payment.

16
<PAGE>

ILLUSTRATION OF CALCULATION OF ANNUITY PAYMENTS

Assume that a Participant at the due date of his or her first annuity
payment is entitled to 30,000 accumulation units, and that the value of an
accumulation unit on the day on which payments commences was $1.150000,
producing a total accumulated value of $34,500. Assume also that the Participant
elects an annuity form for which the table in the variable annuity Contract
indicates the first monthly payment is $6.97 per $1,000 of value applied. The
annuitant's first monthly payment would be 34.500 multiplied by $6.97, which
produces $240.47.

Assume that the annuity unit value for the due date of the first payment is
$1.100000. When this is divided into the first monthly payment, the number of
annuity units represented by that payment is determined to be 218.609. The value
of this same number of annuity units will be paid each subsequent month.

Each subsequent monthly annuity payment is determined by multiplying the
fixed number of annuity units (218.609) by the annuity unit value for the day on
which the annuity payment is due.

VOTING RIGHTS

Contract Owners have the right to vote at any meeting of Owners upon
matters for which security owner approval is required.

Each Participant under a Contract shall be furnished all proxy materials.
Each Participant has the right to instruct the Contract Owner with respect to
the votes attributable to the amounts allocated to his or her individual account
under the terms of the Contract. The Contract Owner will cast the votes in
accordance with the instructions received. Votes which Participants were
entitled to instruct the Contract Owner, but for which the Contract Owner has
received no instructions, shall be cast by the Contract Owner for or against
each proposal to be voted upon in the same proportion as votes for which
instructions have been received.

Neither the Separate Account nor Southwestern is under a duty to inquire as
to the instructions received or the authority of the Contract Owner to cast such
votes. Except to the extent that the Separate Account or Southwestern has actual
knowledge to the contrary, the votes cast by Contract Owners will be considered
valid and effective as they affect the Separate Account, Southwestern, and any
others having voting rights with respect to the Separate Account.

As of April 7, 1995, the number of votes entitled to be cast was 819,507.
As of the same date, the University of Texas owned group Contracts that
represented 130,123 votes of the Separate Account, Southwestern owned a group
Contract and a direct interest in the Separate Account in respect of its initial

17
<PAGE>

capital contribution which represented in the aggregate 102,348 votes of the
Separate Account, Dallas County Community College District owned group Contracts
that represented 95,952 votes of the Separate Account and Culver City Unified
School District owned a group Contract that represented 49,143 votes of the
Separate Account.

EXPERIENCE RATING CREDITS

The Contracts provide that Southwestern, in its sole discretion, may allow
experience rating credits to provide additional accumulation or annuity units,
as the case may be. Pursuant to its experience rating plan, Southwestern will
determine the administrative expenses applicable to each Contract. If actual
costs exceed the amount deducted for such expenses, no additional deduction will
be made. If, however, the amount deducted for such expenses exceeds actual
costs, Southwestern in its discretion may allocate all, a portion, or none of
such excess as an experience rating credit under the Contract. Such experience
rating credit (less applicable premium taxes) will be applied to increase the
number of accumulation units or annuity units, as applicable, without deduction
of any amounts for sales and administrative expenses. Southwestern reserves
discretion to determine when to initiate its experience rating plan, but after
experience rating commences, a determination of the credit, if any, to be
allocated under the Contracts will be made annually. Southwestern does not
intend to begin experience rating in the immediate future.

STATE REGULATION

As a life insurance company organized and operated under Texas law,
Southwestern is subject to provisions governing such companies and to regulation
by the Texas Commissioner of Insurance. An annual statement is filed with the
Commissioner on or before March 1st of each year covering the operations of
Southwestern for the preceding year and its financial condition on December 31st
of such year. Southwestern's books and accounts are subject to review and
examination by the Texas Insurance Board at all times, and a full examination of
its operations is conducted by the National Association of Insurance
Commissioners ("NAIC") at least once every three years. The NAIC has divided the
country into four geographic zones. A representative of each zone in which
Southwestern is licensed to operate is invited to participate in the triennial
examination.

In addition, Southwestern is subject to the insurance laws and regulations
of the other jurisdictions in which it conducts insurance operations. Generally,
the insurance departments of such jurisdictions apply the laws of Texas in
determining permissible investments for Southwestern.

18
<PAGE>

SAFEKEEPING OF SECURITIES

NationsBank of Texas, N.A., P.O. Box 832222, Dallas, Texas 75283-2222,
serves as the Separate Account's custodian.

LEGAL OPINIONS

Certain legal matters concerning the Contracts, including the legality of
the Contracts and their issuance by Southwestern, and the binding obligations of
Southwestern represented by the Contracts, have been passed upon by Daniel B.
Gail, General Counsel of Southwestern.

ACCOUNTANTS

Coopers & Lybrand L.L.P., located at 1999 Bryan Street, Suite 3000, Dallas,
Texas 75201, provides auditing services for the Separate Account and
Southwestern.

FINANCIAL STATEMENTS

The financial statements of Southwestern should be considered by the
purchaser of variable annuity Contracts only as bearing upon the ability of
Southwestern to meet its obligations under the variable annuity Contracts and
not in any sense as a measure of the possible future investment performance of
the Separate Account.

<PAGE>
Coopers Coopers & Lybrand L.L.P.
& Lybrand a professional services firm

Report of Independent Accountants

To the Board of Managers and Contract Owners of the Variable Annuity Fund I of
Southwestern Life:

We have audited the accompanying statement of assets and liabilities of the
Variable Annuity Fund I of Southwestern Life (the Fund ), including the schedule
of portfolio investments, as of December 31, 1994, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the selected accumulation
unit data and ratios for each of the five years in the period then ended. These
financial statements and selected accumulation unit data and ratios are the
responsibility of the Fund s management. Our responsibility is to express an
opinion on these financial statements and selected accumulation unit data and
rations based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
accumulation unit data and rations are free of material misstatement. An audit
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and selected accumulation unit data and
ratios referred to above present fairly, in all material respects, the financial
position of the Fund as of December 31, 1994, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the selected accumulation unit data and rations for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.

/s/Coopers & Lybrand L.L.P.

Dallas, Texas
February 21, 1995

<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994

Assets:
Investment in securities at market (identified cost $2,667,576) . $4,525,703
Short-term investments at cost, which approximates market . . . . 599,836
---------
Total investments . . . . . . . . . . . . . . . . . . . . . 5,125,539

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,307
Receivable for securities sold . . . . . . . . . . . . . . . . . 23,149
Accrued dividends and interest receivable . . . . . . . . . . . . 29,778
---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . 5,227,773
---------
Liabilities:
Payable for securities purchased . . . . . . . . . . . . . . . . 225,880
Payable to affiliates:
Investment management fee payable . . . . . . . . . . . . . . . 1,365
Expense and mortality guarantee fee payable . . . . . . . . . . 4,202
Accountant's and Board of Managers' fees payable . . . . . . . 2,760
Premiums and surrenders, net . . . . . . . . . . . . . . . . . 2,958

Total liabilities . . . . . . . . . . . . . . . . . . . 237,165
---------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . $4,990,608
---------
Net Assets:
685,301 qualified accumulation units at $5.710 per unit . . . . . $3,913,069
112,310 nonqualified accumulation units at $5.197 per unit . . . 583,675
Annuity fund for currently payable contracts . . . . . . . . . . 493,864
---------
$4,990,608
=========

The accompanying notes are an integral part of the financial statements.

<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

STATEMENT OF OPERATIONS
for the year ended December 31, 1994

Investment Income:
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 79,515
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,026
---------
Total income . . . . . . . . . . . . . . . . . . . . . . . 165,541
---------
Expenses:
Accountant's fees . . . . . . . . . . . . . . . . . . . . . . . 25,000
Board of managers' fees . . . . . . . . . . . . . . . . . . . . 7,500
Investment management fee . . . . . . . . . . . . . . . . . . . 12,372
Expense and mortality guarantee fee . . . . . . . . . . . . . . 48,843
---------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 93,715
---------
Net investment income . . . . . . . . . . . . . . . . . 71,826
---------
Net realized and unrealized gain on investments:
Net realized gain from security transactions:
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . 467,596
Cost of securities sold . . . . . . . . . . . . . . . . . . . . 386,328
---------
Net realized gain on investments . . . . . . . . . . . . . 81,268
---------
Net unrealized appreciation on investments:
Beginning of the year . . . . . . . . . . . . . . . . . . . . . 1,753,972
End of the year . . . . . . . . . . . . . . . . . . . . . . . . 1,858,127
---------

Change in unrealized appreciation of investments for the year 104,155
---------

Net realized and unrealized gain on investments . . . . . . . . . 185,423
---------

Increase in net assets resulting from operations . . . . . . . . .$ 257,249
=========

The accompanying notes are an integral part of the financial statements.

<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

STATEMENT OF CHANGES IN NET ASSETS
for the year ended December 31, 1994

Year Ended Year Ended
December 31, December 31,
1994 1993
-------------- ------------
Increase in net assets from operations:
<S> <C> <C>
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,826 $ 65,808
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . 81,268 286,285
Increase (decrease) in unrealized appreciation . . . . . . . . . . . . . . 104,155 (191,314)
-------------- ------------
Net increase in net assets resulting from operations . . . . . . . . . . 257,249 160,779
-------------- ------------
Contract owners' account transactions:
Additions:
Net contract purchases . . . . . . . . . . . . . . . . . . . . . . . . . 42,573 42,767
-------------- ------------
42,573 42,767
-------------- ------------
Deductions:
Contract surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,757 383,275
Adjustments for mortality deviation . . . . . . . . . . . . . . . . . . . (23,480) (30,037)
Annuity payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,063 65,214
-------------- ------------
148,340 418,452
-------------- ------------
Decrease in net assets resulting from contract owners'
account transactions . . . . . . . . . . . . . . . . . . . . . . . (105,767) (375,685)
-------------- ------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . . 151,482 (214,906)
-------------- ------------
Net assets:
Beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,839,126 5,054,032
-------------- ------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,990,608 $4,839,126
============== ============

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

PORTFOLIO OF INVESTMENTS IN SECURITIES
December 31, 1994

Common Stocks
Principal
or Market Percentage of
Shares Cost Value Net Assets

<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
CONSUMER 3,000 Anheuser-Busch Co., Inc. $128,175 $ 153,750 3.08%
DURABLE GOODS 4,000 Colgate-Palmolive Co. 80,930 253,000 5.07
30.53% 16,000 General Motors Corp. Class E 123,180 618,000 12.38
2,000 Philip Morris Companies, Inc. 102,950 114,250 2.29
2,000 WMX Technologies, Inc. 66,700 53,750 1.08
1,000 Masco Corp. 32,475 23,000 0.46
1,000 CPC International, Inc. 41,850 52,625 1.05
2,000 Motorola, Inc. 71,850 117,750 2.36
1,000 VF Corporation 44,225 48,125 0.96
1,000 MCI Communications Corp. 23,475 18,125 0.36
1,000 Ann Taylor Stores Corp. 32,100 34,500 0.69
1,000 Sunbeam-Oster 25,225 25,250 0.51
1,000 Coca-Cola 52,225 52,375 1.05
--------- --------- -----
825,360 1,564,500 31.34
--------- --------- -----
- -------------------------------------------------------------------------------------------------
CONSUMER SERVICES 6,000 Walt Disney Co. 26,244 273,750 5.49
--------- --------- -----
5.34% 26,244 273,750 5.49
--------- --------- -----
- -------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 3,000 J. P. Morgan & Co., Inc. 188,925 169,125 3.39
3.90% 1,000 Regions Financial Corp. 37,475 31,000 0.62
--------- --------- -----
226,400 200,125 4.01
--------- --------- -----
- -------------------------------------------------------------------------------------------------
HEALTH CARE 7,000 Abbott Laboratories 113,925 231,000 4.63
11.77% 5,000 Schering-Plough Corporation 57,950 372,500 7.46
--------- --------- -----
171,875 603,500 12.09
--------- --------- -----
- -------------------------------------------------------------------------------------------------
PRODUCER 8,000 Intel Corporation 40,333 515,000 10.32
--------- --------- -----
DURABLE GOODS 40,333 515,000 10.32
10.05% --------- --------- -----
- -------------------------------------------------------------------------------------------------
INTERMEDIATE 4,000 Amoco Corp. 219,400 235,500 4.72
GOODS & SERVICES 3,000 Texaco, Inc. 203,925 181,875 3.64
--------- --------- -----
8.14% 423,325 417,375 8.36
--------- --------- -----
Total Common Stocks $1,713,537 $3,574,250 71.61%
--------- --------- -----

The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

PORTFOLIO OF INVESTMENTS IN SECURITIES - (continued)
December 31, 1994

- -------------------------------------------------------------------------------------------------
Long-Term Bonds
Principal
or Market Percentage of
Shares Cost Value Net Assets

<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
GOVERNMENT 150,000 U.S. Treasury Note 7.375% $ 148,430 $ 148,547 2.98%
18.56% Due 11/15/97
300,000 U.S. Treasury Note 8.00% 301,313 301,734 6.05
Due 10/15/96
500,000 U.S. Treasury Note 7.875% 504,297 501,172 10.04
Due 1/15/98 ---------- ---------- -------
954,040 951,453 19.07
---------- ---------- -------
- -------------------------------------------------------------------------------------------------
Total Long-Term Bonds $ 954,040 $ 951,453 19.07%
---------- ---------- -------
- -------------------------------------------------------------------------------------------------
Short-Term Investments
- -------------------------------------------------------------------------------------------------
GOVERNMENT 350,000 U.S. Treasury Bill $ 346,286 $ 346,286 6.94%
---------- ---------- -------
6.76% Due 3/9/95
- -------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 125,000 Bemis Co. $ 124,373 $ 124,373 2.49%
4.95% Due 1/5/95
130,000 U.S. Leasing Capital Corp 129,177 129,177 2.59
Due 1/13/95 ---------- ---------- -------

Total Commercial Paper $ 253,550 $ 253,550 5.08
---------- ---------- -------
- -------------------------------------------------------------------------------------------------
Total Short Term Investments $ 599,836 $ 599,836 12.02%
---------- ---------- -------
- -------------------------------------------------------------------------------------------------
Total Investments $3,267,413(a)$5,125,539 102.70%
---------- ---------- -------
- -------------------------------------------------------------------------------------------------
Other Assets less Liabilities (134,931) (2.70)
---------- -------
$4,990,608 100.00%
=========== =======

(A) Aggregate cost for Federal Income Tax purposes is the same. At December
31, 1994, unrealized appreciation/(depreciation) of securities for
Federal Income Tax purposes is as follows:

Unrealized appreciation $1,937,351
Unrealized depreciation (79,224)
----------
$1,858,127
==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Variable Annuity Fund I of Southwestern Life (the Fund) is registered under
the Investment Company Act of 1940, as amended, (the Act) as a diversified,
open-end management investment company. The Fund is no longer actively seeking
investors and unit sales are only open to renewals. The following is a summary
of significant accounting policies consistently followed by the Fund. The
operations of the Fund are part of Southwestern Life Insurance Company
(Southwestern).

Security Valuation

The Fund's investments in securities are carried at market value. Securities
are valued at the last sales price for securities listed on an exchange or
quoted on a national market system, or at the mean between the current bid or
asked price for unlisted securities and listed securities in which there were no
transactions during the day. Debt securities, including listed issues, are
valued on the basis of valuations furnished by a pricing service, which reflect
valuations of normal institutional size trading units of debt securities,
without exclusive reliance upon exchange or over-the-counter prices.

December 30, 1994 was a holiday for Southwestern and the Fund. All
securities included in the year end statements of assets and liabilities and
portfolio of investments are recorded at their market value as of December 29,
1994, which was the Fund's final activity date for the year ended December 31,
1994. Changes in the valuation of the Fund's Securities which occurred after
December 29 were reflected on January 3, 1995.

Security Transactions and Related Investment Income

Security transactions are accounted for on the trade date, the date
securities are purchased or sold. Dividend income is recorded on the ex-dividend
date. Gains and losses from sales of investments are computed on the basis of
identified cost.

Annuity Fund for Currently Payable Contracts

The basis of valuation of individual annuity contracts is the progressive
annuity table, with age adjustments, assuming interest rates of 3% and 3 1/2%.
The basis of valuation for group contract annuity reserves is the group annuity
table for 1951 male lives, projected to 1962 by projection scale C, with age
adjustments and assuming a 3 1/2% interest rate. To the extent the mortality
experience among annuitants varies from the prescribed tables, Southwestern
absorbs the gain or loss.

Federal Income Taxes

The Fund is not taxed separately because the operations of the Fund are part
of the total operations of Southwestern. Southwestern is taxed as a life
insurance company under the Internal Revenue Code. The Fund will not be taxed as
a regulated investment company under subchapter M of the Internal Revenue Code.
Under existing federal income tax law, no taxes are payable by the Fund on the
investment income or on the capital gains. Capital gains and ordinary income are
taxable to the participants only upon distribution.

Qualified accumulation units are those credited to the accounts of variable
annuity contracts or certificates purchased under benefit plans qualified for
special tax treatment under Internal Revenue Code Sections 401, 403 and 408.
Nonqualified accumulation units are those credited to the accounts of variable
annuity contracts or certificates not purchased under such benefit plans. Prior
to 1984, provisions (benefits) for federal income taxes were charged (credited)
to accumulation unit values on nonqualified accumulation units at each valuation
date. Since 1984, qualified and nonqualified accumulation units have been
credited (charged) the same percentage increase (decrease).

<PAGE>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE
NOTES TO FINANCIAL STATEMENTS - (continued)

2. PURCHASES AND SALES OF SECURITIES:

Cost of purchases and proceeds from sales of securities for the year ended
December 31, 1994 were as follows:

Purchases Sales
--------- --------
U.S. Government Securities $148,430 $250,000
Equity Securities 133,025 217,596
--------- --------
$281,455 $467,596
========= ========
3. SALES AND REDEMPTIONS OF UNITS:

Following is a reconciliation of unit (qualified and nonqualified) activity
in the Fund for the years ended December 31, 1994 and December 31, 1993:

1994 1993
--------- --------
Units outstanding at January 1 812,929 880,295
--------- --------
Purchases 7,760 8,147
Surrenders (19,688) (72,100)
Transfers to annuity fund (3,390) (3,413)
--------- --------
Net (decrease) in units (15,318) (67,366)
--------- --------
Units outstanding at December 31 797,611 812,929
========= ========

4. RELATED PARTY TRANSACTIONS:

As required by the Act, the Fund's investments are managed by a registered
investment adviser, SLC Financial Services, Inc. ("SLC Financial"), an affiliate
(formerly I.C.H. Financial Services, Inc.). In accordance with a management
agreement, management fees are computed based on a daily charge of .00089% of
the net assets (.325% on an annual basis.) For the year ended December 31, 1994,
the Fund paid SLC Financial management fees of $12,372.

Southwestern provides administrative services and guarantees the mortality
expense of the Fund. A daily charge of .00274% of the net assets (1.00% on an
annual basis) or $48,843 was paid to Southwestern for the year ended December
31, 1994.

Southwestern pays annuity payments, surrenders, death benefits and certain
expenses on behalf of the Fund. The Fund reimburses Southwestern periodically.

5. FUND CONVERSION

The Board of Managers has voted to submit a proposal to the contract holders
for conversion of the Fund to a Unit Investment Trust. If the proposal is
approved by the contract holders, the Fund's assets are to be exchanged for
shares of a mutual fund with substantially similar investment objectives and
policies as currently in effect for the Fund.

<PAGE>
<TABLE>
<CAPTION>
VARIABLE ANNUITY FUND I OF SOUTHWESTERN LIFE

SUPPLEMENTARY INFORMATION-SELECTED ACCUMULATION UNIT DATA AND RATIOS

For year ended December 31,
--------------------------------------------
1994 1993 1992 1991 1990
Qualified Unit: -------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Investment income $ .187 $ .176 $ .163 $ .188 $ .222
Expenses .106 .105 .097 .084 .074
-------- ------- ------- ------- ------
Net investment income .081 .071 .066 .104 .148
Net realized and unrealized gain (loss) on securities .231 .101 .200 .918 (.116)
-------- ------- ------- ------- ------
Net increase in unit value .312 .172 .266 1.022 .032
Unit value:
Beginning of the year 5.398 5.226 4.960 3.938 3.906
-------- ------- ------- ------- ------
End of the year $5.710 $5.398 $5.226 $4.960 $3.938
======== ======= ======= ======= =======
Number of units outstanding at end of the period (in thousands) 685 701 764 930 1,156
======== ======= ======= ======= =======
Nonqualified Unit:
Investment income $ .170 $ .160 $ .149 $ .171 $ .202
Expenses .096 .096 .088 .076 .067
-------- ------- ------- ------- ------
Net investment income .074 .064 .061 .095 .135
Net realized and unrealized gain (loss) on securities .210 .092 .183 .834 (.106)
-------- ------- ------- ------- ------
Net increase in unit value .284 .156 .244 .929 .029
Unit value:
Beginning of the year 4.913 4.757 4.513 3.584 3.555
-------- ------- ------- ------- ------
End of the year $5.197 $4.913 $4.757 $4.513 $3.584
-------- ------- ------- ------- ------
Number of units outstanding at end of the period (in thousands) 112 112 116 116 124
======== ======= ======= ======= =======
Ratios:
Expenses to average net assets (%) 1.91 1.98 1.95 1.92 1.91
Net investment income to average net assets (%) 1.47 1.33 1.35 2.39 3.85
Portfolio turnover (%) 6 9 5 25 8

</TABLE>
<PAGE>
Coopers & Lybrand L.L.P.
a professional services firm

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Southwestern Life Insurance Company

We have audited the accompanying statutory statements of admitted assets,
liabilities and capital and surplus of Southwestern Life Insurance Company as of
December 31, 1994 and 1993, and the related statements of operations, capital
and surplus and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As described in Note 1, the accompanying financial statements have been prepared
in conformity with the accounting practices prescribed or permitted by the
National Association of Insurance Commissioners or the Texas Department of
Insurance, which is a comprehensive basis of accounting other than generally
accepted accounting principles. The effects on such financial statements of the
variances between such practices and generally accepted accounting principles
are described in Note 15.

In our opinion, because of the effects of the matters discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Southwestern Life Insurance Company as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for the years then ended.

However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities and capital
and surplus of Southwestern Life Insurance Company as of December 31, 1994 and
1993, and the results of its operations and its cash flows for the years then
ended, on the basis of accounting described in Note 1.

Our audit was conducted for the purpose of expressing an opinion on the
statutory financial statements taken as a whole. The Schedule of Selected
Financial Data is presented to comply with the NAIC's Annual Statement
Instructions and is not a required part of the basic statutory financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic statutory financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
statutory financial statements taken as a whole.

/s/ Coopers & Lybrand, L.L.P.

Dallas, Texas
March 30, 1995, except for Note 2b, as to
which the date is April 19, 1995

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Admitted Assets, Liabilities and
Capital and Surplus (Statutory Basis)
December 31, 1994 and 1993
(In Thousands)

Admitted Assets 1994 1993
- --------------- ---- ----

<S> <C> <C>
Cash and investments:
Bonds $ 912,829 $ 793,789
Common stocks:
Affiliated 83,702 83,988
Unaffiliated 1,561 3,391
Mortgage loans 122,318 128,401
Real estate 20,965 27,482
Policy loans 127,144 132,389
Collateral loans 49,465 21,754
Cash 17,498 3,747
Short-term investments 32,697 37,784
Other invested assets 31,657 36,852
---------- ----------

Total cash and investments 1,399,836 1,269,577

Accrued investment income 15,667 14,621
Deferred and uncollected premiums 2,064 942
Electronic data processing equipment at cost, less
accumulated depreciation of $5,124 in 1994 and
$5,011 in 1993 243 328
Receivable from affiliates 156 2,038
Guarantee assessment funds 2,948 2,630
Due from reinsurer 7,532 202
Other assets 7,539 7,317
---------- ----------

$1,435,985 $1,297,655
========= =========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Admitted Assets, Liabilities and
Capital and Surplus (Statutory Basis)
(Continued)
December 31, 1994 and 1993
(In Thousands, Except Share Data)

Liabilities, Capital and Surplus 1994 1993
- -------------------------------- ---- ----
<S> <C> <C>
Liabilities:
Future policy benefits:
Aggregate reserve for life policies and contracts $1,220,054 $1,058,794
Supplementary contracts without life contingencies 23,366 9,983
Life policy and contract claims 7,302 5,837
Policyholders' dividend and coupon accumulations 182 178
Policyholders' dividends and coupons due and unpaid 179 238
Premiums received in advance and premium deposit funds 10,232 3,037
Other policy and contract liabilities 11,951 14,356
Interest maintenance reserve 1,329
Commissions payable 688 382
Federal income taxes due or accrued 4,148
Accrued expenses and other liabilities 14,404 27,390
Asset valuation reserve 25,740 25,936
Unearned investment income 3,557 3,774
Funds held under reinsurance treaties 45 516
------------ -----------

1,319,029 1,154,569
------------ -----------

Capital and surplus:
Common stock, $1.00 par value, 5,000,000 shares
authorized, issued and outstanding 5,000 5,000
Additional paid-in capital 211,637 211,637
Unassigned surplus 60,932 87,062
Treasury stock, at cost, 2,000,000 shares (160,613) (160,613)
------------ -----------

116,956 143,086
------------ -----------

$1,435,985 $1,297,655
============ ===========

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Operations (Statutory Basis)
For the Years Ended December 31, 1994 and 1993
(In Thousands)
<TABLE>
<CAPTION>

1994 1993
<S> <C> <C>
Premiums and other considerations:
Life and annuity $135,898 $130,016
Supplementary contracts and dividend and coupon accumulations 2,120 4,714
Net investment income 94,580 86,298
Amortization of interest maintenance reserve (1,743) (1,209)
Commissions on reinsurance ceded 4,992 4,880
Reserve adjustments on reinsurance ceded and other income (15,230) (12,931)
Amounts transferred on reinsurance 108,227 36,638
------- --------
Total premiums and other considerations 328,844 248,406
------- -------

Benefits paid or provided:
Death and annuity benefits 61,953 48,563
Disability benefits and benefits under accident and health policies 516 482
Surrender benefits 35,302 36,918
Annuity purchase fund disbursements 140 403
Other benefits 11,782 7,582
Increase in reserves for life policies and contracts 161,260 100,100
Reserve adjustment on reinsurance assumed 3,247
Increase (decrease) in reserves for other contract deposit funds 6,706 (590)
Increase (decrease) in reserves for supplementary contracts without
life contingencies and for dividend and coupon accumulations 13,386 (491)
-------- --------
Total benefits paid or provided 291,045 196,214
------- -------

Insurance expenses:
Commissions 18,268 15,564
General expenses 20,987 35,023
Insurance taxes, licenses and fees 4,791 5,630
Interest expense on surplus debenture 1,516
Other 604 412
--------- ---------
Total insurance expenses 44,650 58,145
-------- --------
Total benefits and expenses 335,695 254,359
------- -------

Loss from operations before dividends to policyholders and
federal income tax provision (6,851) (5,953)
Dividends to policyholders 120 306
-------- --------
Loss from operations before federal income tax provision
and realized capital gains (losses) (6,971) (6,259)
Federal income tax provision 1,788 3,416
------- --------
Net loss from operations before realized capital gains (losses) (8,759) (9,675)
Realized capital gains (losses), net (6,109) 34,209
------- -------

Net income (loss) $(14,868) $ 24,534
========= ========

The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Capital and Surplus (Statutory Basis)
For the Years Ended December 31, 1994 and 1993
(In Thousands)

1994 1993
---- ----

<S> <C> <C>
Common stock at beginning and end of year $ 5,000 $ 5,000
-------- --------

Additional paid-in capital at beginning and end of year 211,637 211,637
------- -------

Unassigned surplus:
Balance at beginning of year 87,062 57,102
Net income (loss) from operations (14,868) 24,534
Net unrealized capital gains 54 49,987
Dividends to stockholder (14,000) (42,900)
Change in asset valuation reserve 196 (2,041)
Prior year taxes (285) 732
Change in non-admitted assets and other items 2,773 (352)
--------- ---------

Balance at end of year 60,932 87,062
-------- --------

Treasury stock:
Balance at beginning of year 160,613
Purchase of treasury stock 160,613
----------- -------

Balance at end of year 160,613 160,613
------- -------

Total capital and surplus $116,956 $143,086
======= =======

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY
Statements of Cash Flows (Statutory Basis)
For the Years Ended December 31, 1994 and 1993
(In Thousands)
<TABLE>
<CAPTION>

1994 1993
---- ----
Cash provided (used) by operations:
<S> <C> <C>
Premiums and annuity considerations $133,714 $ 129,201
Other premiums and deposits 2,120 4,714
Allowances received on reinsurance assumed (18,963) (18,065)
Investment income 109,757 143,804
Other income 116,505 44,192
Life and accident and health claims (55,618) (45,712)
Surrender benefits (35,442) (37,321)
Other benefits (19,522) (8,277)
Commissions, expenses and taxes (43,227) (58,473)
Dividends paid to policyholders (179) (225)
Federal income taxes (5,690) (74,816)
Decrease in policy loans 5,245 2,825
Interest on surplus debenture (1,516)
Other operating income (disbursements) 365 (42)
--------- ------------

Net cash provided by operations 189,065 80,289
------- ----------

Other cash provided:

Proceeds from investments sold or matured 468,777 998,343
Other cash provided 9,957 14,666
-------- ----------

Total cash provided 667,799 1,093,298
------- ---------

Other cash applied:

Cost of long-term investments 617,289 876,542
Payments on surplus debenture 141,842
Dividends paid to stockholder 14,000 42,900
Purchase of treasury stock 160,613
Other cash applied 27,846 14,736
-------- ----------

Total other cash applied 659,135 1,236,633
------- ---------

Net increase (decrease) in cash and short-term investments 8,664 (143,335)

Cash and short-term investments:
Beginning of year 41,531 184,866
------- ----------

End of year $ 50,195 $ 41,531
======== ===========

The accompanying notes are an integral part of the financial statements.

</TABLE>

5
<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements

1. Basis of Presentation and Significant Accounting Policies

a. Organization

Southwestern Life Insurance Company (the Company) is a wholly-owned
subsidiary of SWL Holding Corporation (SWL Holding), formerly Life
Interests Corporation, whose ultimate parent is Southwestern Life
Corporation (SLC), formerly I.C.H. Corporation. Prior to September 29,
1993, the date of the reorganization as discussed in Note 2, the
Company was a subsidiary of Modern American Life Insurance Company
(Modern American).

b. Basis of Presentation

The accompanying financial statements have been prepared in conformity
with the accounting practices prescribed or permitted by the National
Association of Insurance Commissioners (NAIC) or the Texas Department
of Insurance (Texas Department), which vary in some respects from
generally accepted accounting principles (GAAP). The more significant
of these differences are: (a) methods of recording reinsurance
contracts; (b) under statutory accounting principles, investments are
carried at values prescribed by the NAIC with provisions for an asset
valuation reserve (AVR) and an interest maintenance reserve (IMR).
Under GAAP, trading securities and securities available for sale would
be carried at fair value, and held to maturity securities would be
carried at amortized cost; (c) acquisition costs, such as commissions
and other costs related to acquiring new business, are charged to
current operations as incurred rather than matched against premiums
which are taken into income over the premium paying period or on a pro
rata basis over the respective terms of the policies; (d) additional
reserves are based on statutory mortality and interest requirements
and may differ from GAAP reserves; (e) deferred federal income taxes
are not provided for bases differences between tax and financial
reporting; and (f) certain assets are not recognized under statutory
accounting principles, some of which are reflected as a reduction to
surplus as non-admitted assets, whereas under GAAP, such assets would
be separately evaluated regarding realization to determine the
appropriate valuation.

c. Investments

Bonds not backed by other loans are stated at amortized cost using the
interest method. Loan-backed bonds and structured securities are
stated at amortized cost using the interest method including
anticipated prepayments at the date of purchase. Significant changes
in estimated cash flows are accounted for using the prospective
method. Obligations which do not qualify for amortization are stated
at NAIC value or a supportable value.

Common stocks of unaffiliated issuers are carried at market value. The
Company's investments in 100% of the common stocks of its insurance
subsidiaries, are carried at the net capital and surplus of the
respective companies, as determined on the basis of accounting
practices prescribed by regulatory authorities. The Company's
investments of 100% in its non-insurance subsidiary REO Holding
Corporation (REO), and 83% in its non-insurance subsidiary I.C.H.
Funding Corporation (ICH Funding), are determined on the equity basis
as described in Section 5(B)(a) of the NAIC Valuation of Securities
Manual. At December 31, 1994, the Company's subsidiaries were Bankers
Life Insurance Company of New York (Bankers New York), formerly
Bankers Life and Casualty Company of New York, Constitution Life
Insurance Company

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

c. Investments, continued

(Constitution), ICH Funding and REO. At December 31, 1993, the
Company's subsidiaries were Bankers New York, Constitution and REO.

Mortgage loans on real estate are carried at their aggregate unpaid
principal balances, net of non-admitted portions.

Real estate, substantially all of which is acquired through
foreclosure, is carried at the lower of cost or market at the date of
acquisition, net of non-admitted portions, adjusted for accumulated
depreciation and related encumbrances, if any. Depreciation is
computed principally on the straight-line method.

Policy loans are carried at their aggregate unpaid principal balances.

Short-term investments include those investments whose maturities at
the time of acquisition were one year or less. These investments are
carried at amortized cost which approximates fair value.

Other invested assets include residual interests in mortgage-backed
securities stated at amortized cost using the interest method
including anticipated prepayments at the date of purchase, and other
miscellaneous investments carried at amortized cost.

Realized gains and losses on investments are determined on a specific
identification basis and are included as a component of net gain from
operations, net of federal income taxes and amounts transferred to the
IMR. Unrealized gains or losses on investments are credited or charged
to unassigned surplus.

d. Premiums Deferred and Uncollected

Deferred and uncollected life insurance premiums represent annual or
fractional premiums, either due and uncollected or not yet due where
policy reserves have been provided on the assumption that the full
premium for the current policy year has been collected. Deferred and
uncollected premiums are reported net of loading and reinsurance
ceded.

e. Non-Admitted Assets

Certain assets are considered non-admitted assets for statutory
purposes and any changes in such assets are credited or charged
directly to unassigned surplus.

f. Aggregate Reserves

The reserves for future policy benefits are actuarially computed in
accordance with state statutes and administrative regulations.

The reserves are reported net of a deduction for reinsurance ceded to
other companies. The ceded reserves are calculated primarily on a
yearly renewable term or coinsurance basis.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

f. Aggregate Reserves, continued

The aggregate reserve for annuities is based primarily on the
Commissioners Annuity Reserve Valuation Method (CARVM). Assumed
interest rates on annuities range from 4% to 9.25%.

The aggregate reserve for life policies has been calculated
principally using the Net Level Premium Reserve Method (NLP Method)
and the Commissioners Reserve Valuation Method (CRVM), utilizing the
American Experience Table, the 1941, 1958 and 1980 Commissioners
Standard Ordinary Mortality Tables and assumed interest rates of 2.5%
to 6.0%. Universal Life reserves are computed in accordance with the
NAIC Universal Life Model Regulation.

Additional reserves are provided if projected cash flows from assets
supporting reserve liabilities and anticipated future revenues from
the underlying insurance policies are determined to be insufficient to
cover future policy obligations under moderately adverse conditions.
At this time, no such additional reserves are needed.

g. Separate Accounts

Separate accounts represent segregated assets whose values directly
determine the amounts of the liabilities for variable annuities. The
Company does not have an investment risk with these assets and
liabilities. The risk lies solely with the holder of the contract.

Separate accounts are included in other assets and other liabilities
in these financial statements.

h. Policy and Contract Claims

Policy and contract claims include provisions for reported claims in
the process of settlement, valued in accordance with the terms of the
related policies and contracts, as well as provisions for claims
incurred but not reported, based on prior experience of the Company.

i. Premium Income Recognition

Life insurance premiums on traditional life policies are reported as
earned on the anniversary dates of the policies. Life insurance
premiums on universal life policies and annuities are reported as
earned when collected. Acquisition costs, such as commissions and
other costs in connection with acquiring new business, are charged to
operations as incurred.

j. Federal Income Taxes

Beginning in 1992, the Company and its subsidiaries are included in
the federal consolidated income tax return of SLC. The Consolidated
Return Group is subject to a Tax Allocation Agreement under which each
member's tax liability equals or approximates separate return
calculations with current credit for net losses utilized by other
members of this group.

Adjustments in prior years' taxes are charged or credited directly to
surplus.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

k. Interest Maintenance Reserve

An IMR is provided in compliance with NAIC prescribed accounting
practices in order to provide a reserve for fixed income realized
gains and losses related to changes in interest rates.

The IMR is amortized against gain from operations on a basis
reflecting the remaining period to maturity of the fixed income
securities sold.

l. Asset Valuation Reserve

An AVR is provided in compliance with NAIC prescribed accounting
practices in order to provide a reserve for credit-related losses in
the investment portfolio.

m. Surplus Debenture

The Company had an outstanding surplus debenture payable to SLC.
Because this obligation was payable only out of surplus funds in
excess of specified levels, the principal balance of the surplus
debenture and accrued interest thereon, net of amounts currently
available for payment, was reflected as a component of capital and
surplus. At December 31, 1992 the entire balance was available for
payment and during 1993 the entire balance was repaid.

n. Postretirement Benefits Obligation

Effective January 1, 1993, the Company and its subsidiaries were
required under statutory accounting practices to adopt the accrual
method of accounting for certain postretirement benefits. The Company
and its subsidiaries are amortizing the transition obligation over a
20-year period.

o. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash and short-term investments: The carrying amounts reported in the
statement of admitted assets, liabilities and capital and surplus for
these instruments approximate their fair values.

Investment securities: Fair values for bonds are based on quoted
market prices, where available. For bonds not actively traded, fair
values are estimated using values obtained from independent pricing
services. The fair values for unaffiliated common equity securities
are based on quoted market prices and are recognized in the statement
of admitted assets, liabilities and capital and surplus (see Note 3).

Mortgage loans and other invested assets: Fair values for mortgage
loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for similar loans to borrowers
with similar credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations. The fair values of the
Company's investments in residual interests in mortgage-backed
securities were obtained from an independent broker-dealer. The fair
values of other miscellaneous invested assets have not been estimated
due to their relative immateriality (see Note 3).

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

o. Fair Values of Financial Instruments, continued

Investments in limited partnerships: Fair values for the Company's
investments in limited part-nerships are based on the estimated fair
values of the partnership assets and liabilities, assum-ing a
liquidation of the partnership and distribution of proceeds to the
partners (see Note 3).

Policy loans: The Company does not believe an estimate of the fair
value of policy loans can be made without incurring excessive cost.
Further, because of the numerous assumptions which must be made to
estimate the fair value of policy loans, the Company does not believe
that such information would necessarily be meaningful.

Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted
cash flow calculations, based on interest rates currently being
offered for similar contracts with maturities consistent with those
remaining for the contracts being valued.

p. Reclassifications

Previously reported 1993 amounts have in some instances been
reclassified to conform to the 1994 presentation. Certain accounts as
reflected in the Company's Annual Statement filed with regulatory
authorities have been reclassified to more accurately reflect the
nature of such accounts.

2. Change in Subsidiary Holdings

a. Acquisition of Subsidiaries

In conjunction with the termination of a reinsurance agreement with
Consolidated Fidelity Life Insurance Company (CFLIC), a former
affiliate, the Company acquired 83% of the common stock of ICH Funding
valued at $9.6 million (as of April 1, 1994, see Note 11).

b. Disposition of Subsidiaries

On April 19, 1995, SLC entered into a definitive agreement to sell to
an unaffiliated party the Company's wholly-owned subsidiary, Bankers
New York for $35 million cash, subject to certain closing adjustments.
The transaction is subject to, among other conditions, receipt of
required regulatory approvals.

On March 24, 1995, SLC entered into a letter of intent to sell to an
unaffiliated third party the Company's wholly-owned subsidiary,
Constitution for $1.86 million cash plus Constitution's adjusted
capital and surplus. The transaction is subject to, among other
conditions, completion of a definitive agreement and receipt of
regulatory approvals. Also, as a condition to consummation of the
transaction, Constitution will be required to cede 100% of its
insurance contracts to another insurer.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

c. Reorganization

Prior to the reorganization of SLC's insurance holding company system
in September 1993, the Company was held by SLC indirectly through
Modern American. Union Bankers Insurance Company (Union Bankers),
Bankers Multiple Line Insurance Company (Bankers Multiple Line),

Bankers New York, Southeast Title and Insurance Company (SET) and
Constitution were held directly by the Company. The reorganization
involved a series of transactions including the retirement of debt and
equity securities, the payment of dividends, and the execution of a
new reinsurance agreement between Modern American and the Company. In
addition, the Company invested in a subsidiary, Philadelphia American
Life Insurance Company (Philadelphia American), by virtue of its
receipt of a dividend from Constitution of the stock of Philadelphia
American then held by Constitution. The Company reduced its investment
in insurance subsidiaries to Constitution and Bankers New York by
contributing the stock of Union Bankers, Bankers Multiple Line,
Philadelphia American and SET to Care Financial Corporation (CFC),
formerly Health Interests Corporation. The Company then transferred to
SWL Holding 100% of the stock of CFC in exchange for 2 million shares
of its own capital stock. The restructuring was completed following
the receipt of approvals by the Missouri, Texas, Illinois, Kentucky
and Pennsylvania Insurance Departments.

3. Investments

Bonds with a statement value of $129,791,000 and $227,562,000 at December
31, 1994 and 1993, respectively, were on deposit with various regulatory
authorities as required by law.

The amortized cost of investments in bonds, the cost of unaffiliated
equity securities and the estimated fair values of such investments at
December 31, 1994 and 1993 by categories of securities are as follows (in
thousands):
<TABLE>

December 31, 1994: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
<S> <C> <C> <C> <C>
United States Government, government
agencies and authorities $ 12,566 $ 14 $ 419 $ 12,161
States, municipals and political
subdivisions 12,908 81 266 12,723
Foreign governments 14,747 27 1,204 13,570
Public utilities 91,223 12,576 78,647
Mortgage backed securities 410,811 912 50,079 361,644
All other corporate 370,574 535 25,887 345,222
------- ------ ------ -------

Subtotal, bonds 912,829 1,569 90,431 823,967
------- ------ ------ -------

Common stocks, unaffiliated 2,655 329 1,423 1,561
-------- ------ ------- --------

Subtotal, equity securities 2,655 329 1,423 1,561
-------- ------ ------- --------

Total bonds and equity securities $915,484 $1,898 $91,854 $825,528
======== ====== ======= ========
</TABLE>

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

3. Investments, continued

December 31, 1993:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
<S> <C> <C> <C>

United States Government, government
agencies and authorities $ 10,879 $ 485 $ 18 $ 11,346
Foreign government 7,714 834 8,548
Public utilities 80,327 1,375 1,489 80,213
Mortgage backed securities 322,023 10,785 9,036 323,772
All other corporate 372,846 22,514 2,889 392,471
-------- ------- ------- --------
Subtotal, bonds 793,789 35,993 13,432 816,350
-------- ------- ------- --------
Common stocks, unaffiliated 4,303 1,362 2,274 3,391
-------- ------- ------- --------

Subtotal, equity securities 4,303 1,362 2,274 3,391
-------- ------- ------- --------

Total bonds and equity securities $798,092 $37,355 $15,706 $819,741
======== ======= ======= ========
</TABLE>

The amortized cost and estimated fair value of bonds at December 31, 1994,
by contractual maturity, are shown below (in thousands). Actual maturities
may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.

Estimated
Amortized Fair
Cost Value

<S> <C> <C>
Due in one year or less $ 13,788 $ 12,860
Due after one year through five years 70,770 68,691
Due after five years through ten years 162,707 153,859
Due after ten years 254,753 226,913
------- -------
502,018 462,323
Mortgage-backed securities 410,811 361,644
------- -------
$912,829 $823,967
======= =======
</TABLE>

At December 31, 1994 the Company held unrated or noninvestment-grade
corporate debt securities (NAIC Classes 3 through 6) of approximately
$62.1 million with an aggregate estimated fair value of approximately
$54.9 million. These holdings amounted to 6.8% of the Company's bonds and
4% of total cash and invested assets. The holdings of noninvestment-grade
securities are widely diversified and include securities of 41 issuers.

Excluding scheduled maturities, proceeds from sales of bonds during 1994
and 1993 and the related gross gains and gross losses realized on such
sales were as follows (in thousands):

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

3. Investments, continued
<TABLE>
<CAPTION>

1994 1993
---- ----

<S> <C> <C>
Proceeds from sales $346,861 $364,212
Gross gains 6,034 12,498
Gross losses 2,161 5,469
</TABLE>

The following is an analysis of changes in the difference between
estimated fair values and amortized cost of investments owned by the
Company (in thousands):

1994 1993
---- ----

<S> <C> <C>
Bonds $(111,423) $ 31,149
Unaffiliated common stocks (182) (10,601)
-------- ------

Total increase (decrease) $(111,605) $ 20,548
======== ======
</TABLE>

The carrying amounts and the estimated fair values of the Company's
investments in mortgage loans and residual interests in mortgage-backed
securities were as follows at December 31, 1994 and 1993 (in thousands):

1994 1993
---- ----
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value

<S> <C> <C> <C> <C>
Mortgage loans $122,318 $115,878 $128,401 $132,623
======= ======= ======= =======

Residual interests $ 6,282 $ 2,026 $ 8,391 $ 3,768
======= ======= ======= =======
</TABLE>

The Company's mortgage loans consist primarily of loans on commercial real
estate. At December 31, 1994 approximately 64% of such mortgages involved
property located in Texas, consisting primarily of first mortgage liens on
income-producing properties.

Following is a summary of the Company's carrying value of investments in
the common stocks of subsidiaries and affiliates at December 31, 1994 and
1993 (in thousands):
<TABLE>
<CAPTION>

1994 1993
---- ----

<S> <C> <C>
Bankers Life Insurance Company of New York $23,898 $24,773
Constitution Life Insurance Company 45,822 49,648
I.C.H. Funding Corporation 6,530
REO Holding Corporation 7,452 9,567
------- -------

$83,702 $83,988
====== ======
</TABLE>

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

3. Investments, continued

The investment in common stocks of affiliated companies, other than ICH
Funding, represents the investment in wholly owned subsidiaries. The
Company owns 83% of the common stock of ICH Funding and Bankers Multiple
Line owns the remaining 17%.

Summarized financial information as determined on the basis of statutory
accounting practices for investments in affiliates at December 31, 1994
and 1993 is as follows (in thousands):

<TABLE>
<CAPTION>
1994 1993
---- ----

<S> <C> <C>
Insurance assets $685,761 $749,264
Insurance liabilities 616,041 674,843
------- -------
Capital and surplus 69,720 74,421
Noninsurance affiliates equity 13,982 9,567
-------- --------
$ 83,702 $ 83,988
======== ========
</TABLE>

Prior to December 31, 1992 Bankers Life and Casualty Company (Bankers)
held a note receivable from James M. Fail (Fail) with an aggregate
carrying value, including accrued interest, of $33.6 million. The note
receivable was issued in conjunction with a December 1990 refinancing of
certain obligations due by Mr. Fail to Bankers and Marquette National Life
Insurance Company (Marquette), an affiliate, and is collateralized by Mr.
Fail's ownership in Consolidated Federal Savings Bank (CFSB) and CFSB's
ownership in its wholly-owned subsidiary, Bluebonnet Savings Bank. This
note receivable was purchased by the Company on December 31, 1992 for
$31.6 million. The value of the collateral at the time of purchase was
estimated to be $60.7 million. In January 1993 the Fail loan was
restructured into a note to Fail for $12.4 million and a note to CFSB for
$17.8 million. The notes provide for quarterly installments of principal
and interest at 12% which will amortize the loans over a seven-year
period.

In conjunction with the termination of the CFLIC reinsurance agreement,
the Company acquired additional collateral loans due from Fail and CFSB
totalling $29.1 million and $21.5 million, respectively (as of April 1,
1994, see Note 11). Subsequently, 50% of the Fail loans were transferred
to an unaffiliated insurance company in exchange for other securities.

The loans the Company holds at December 31, 1994 are collateralized by
2,400 shares of CFSB common stock, less the loan amounts transferred,
valued at $110.4 million, and 100% of the non-voting capital stock of
Bluebonnet Savings Bank and all rights thereto per the security agreement
dated January 25, 1993, valued at $80.2 million. The carrying value of the
Fail loans at December 31, 1994 and 1993 were $20.2 million and $11.2
million, respectively. The carrying value of the CFSB loans at December
31, 1994 and 1993 were $29.3 million and $10.6 million, respectively.

Following is an analysis of realized capital gains (losses) on investments
(in thousands):

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

3. Investments, continued
<TABLE>
<CAPTION>

Years Ended December 31,
1994 1993

<S> <C> <C>
Bonds $ 3,873 $(5,473)
Preferred stocks 2,823
Common stocks - affiliated (214)
Common stocks - unaffiliated (691) 14,938
Equity in realized gains (losses) of subsidiaries (6,405) 25,183
Other (2,047) 451
----- -------
(5,270) 37,708
Amount transferred to the IMR (1,414) 2,834
Income tax provision 575 (6,333)
------ ------

Net realized capital gains (losses) $(6,109) $34,209
===== ======
</TABLE>

Subsequent to the filing of their 1992 Annual Statements, the Company and
certain of its direct subsidiaries determined that they had experienced an
impairment in the value of certain residual interest and mortgage-backed
interest-only securities (IO's). Such impairments were attributable to a
decline in market interest rates which occurred after December 31, 1992
and which resulted in an acceleration of prepayments on and refinancing of
the mortgage loans underlying the mortgage-backed securities. Based on
prepayment rates experienced during the first three months of 1993 and
market estimates of future prepayment rates as of the last week of March
1993, the estimated losses on such mortgage-backed securities during 1993
totalled $7,512,000 for the Company and $14,642,000 for its subsidiaries.
In addition, it was determined that, as a result of accounting errors, the
value of the residual interests held were overstated at December 31, 1992
by $560,000 for the Company and $5,599,000 for certain subsidiaries.
Managements of the Company and its subsidiaries had stated their intent to
dispose of such investments in 1993 and, accordingly, in the statutory
financial statements at December 31, 1992, the admitted values of such
residual interests and IO certificates were adjusted to reflect the
impairment in values and a correction for the accounting errors. The
Company's equity in the realized investment losses of subsidiaries was
adjusted to reflect the effect of the accounting errors at December 31,
1993 (see Note 16).

The investments the Company and its subsidiaries held in IO certificates
were sold during 1993. The Company reduced its investment in the residual
interests it held from $8.4 million at December 31, 1993 to $6.3 million
at December 31, 1994. The Company's subsidiaries reduced their investment
in residual interests they held from $8.2 million at December 31, 1993 to
$6 million at December 31, 1994. The effective yield on residual interests
averaged approximately 2% at December 31, 1994.

Included in other invested assets is an ownership interest in a limited
partnership which acquired, through auction, certain mortgage loans and
real estate formerly held by failed savings and loan associations for
resale. During 1994 this limited partnership distributed $7,891,000 of
mortgages to the Company. After this distribution the remaining assets of
the limited partnership consisted primarily of income producing real
estate. The carrying values of this limited partnership were $21.1 million
and $25 million at December 31, 1994 and 1993, respectively.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

4. Net Investment Income

Net investment income consists of the following (in thousands):
<TABLE>
<CAPTION>

Years Ended December 31,
1994 1993

Investment income:
<S> <C> <C>
Interest on bonds and short-term investments $ 69,820 $58,100
Dividends 6 1,249
Equity in earnings of subsidiaries (A) (2,152) (530)
Interest on mortgage loans 11,702 13,986
Income from real estate investments 3,900 3,693
Interest on policy loans 7,832 7,992
Interest on collateral loans 5,373 2,843
Other 6,935 7,443
------- ------
Gross investment income 103,416 94,776
Investment expenses 8,836 8,478
------- ------

Net investment income $ 94,580 $86,298
======= ======
</TABLE>

(A) Cash dividends received from subsidiaries totalled $5.6 million in
1994 and $58.4 million in 1993.

The carrying value of nonaffiliated invested assets for which no
investment income was recorded during the twelve months ended December 31,
1994 was as follows (in thousands):
<TABLE>

<S> <C>
Bonds $ 1,048
Common stock 377
Real estate 12,462
Cash and short-term investments 1,143
Other invested assets 5,961
------

Total $20,991
======

</TABLE>

5. Real Estate

Real estate consists of the following at December 31, 1994 and 1993 (in
thousands):
<TABLE>

1994 1993
---- ----

<S> <C> <C>
Cost of real estate $30,934 $35,932
Accumulated depreciation (1,563) (1,354)
Real estate not admitted (8,406) (7,096)
------ ------

$20,965 $27,482
====== ======
</TABLE>

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

6. Transactions with Affiliates

The Company is a party to a management and service agreement with
Facilities Management Installation, Inc. (FMI), a subsidiary of SLC. FMI
provides substantially all administrative, management, investment,
personnel, data processing, facilities and certain other services for SLC,
its subsidiaries and affiliates and certain other unrelated parties. Under
the management and service agreement with FMI, the Company pays fees for
personnel, data processing and other services equal to the cost of such
services to FMI and a percentage markup totalling 12% of such costs. The
Company incurred $21,822,864 and $34,768,527 in fees in accordance with
the agreement in 1994 and 1993, respectively.

The principal balance of a surplus debenture payable to SLC, which was
included in liabilities, at December 31, 1992, totalled $141,842,000 and
was repaid in 1993. Interest paid in 1993 totalled $1,516,000.

On November 9, 1992 the Company sold its wholly-owned subsidiary Bankers.
In connection with the sale of Bankers, SLC advanced $2,801,000 in costs
and expenses to the Company. At December 31, 1992 the Company reflected a
payable to SLC for reimbursement of such costs and expenses. This amount
was repaid in 1993.

In addition, the sale of Bankers was subject to Bankers having a specified
level of adjusted capital and surplus as of October 31, 1992. A final
determination as to the level of such adjusted capital and surplus was
mutually agreed upon by the buyer and the Company and the Company was
required to return a portion of the proceeds it had already received from
the sale totalling $2.5 million. This payment was made on June 30, 1994.

The Company also paid $275,000 to Philadelphia American on November 23,
1994 in settlement of certain uncollectible receivables related to the
sale of Bankers.

As part of a reorganization effected in September 1993, the Company
entered into a reinsurance agreement with Modern American. See Notes 2 and
11 for a description of the reorganization and affiliated reinsurance
agreements, respectively.

7. Federal Income Taxes

Life insurance companies are taxed at corporate rates on life insurance
company taxable income, any distributions from policyholders' surplus
account (the Company's balance in this account is zero) and net realized
capital gains. Taxable income is life insurance gross income reduced by
life insurance deductions which include generally available business
deductions and certain other adjustments prescribed by the Internal
Revenue Code.

Pursuant to the Tax Reform Act of 1986, all corporations including
insurance companies are subject to the alterative minimum tax (AMT). This
law requires corporations to pay the higher of regular tax or AMT. A
corporation's alternative minimum taxable income is equal to its regular
taxable income increased by tax preferences and other adjustments. In
general, the AMT rate is 20%.

Reconciliations of the amounts computed by applying the statutory U. S.
federal income tax rate of 35% to income before tax and the provisions as
reflected in the statement of operations for the years ended December 31,
1994 and 1993, are as follows (in thousands):

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

7. Federal Income Taxes, continued
<TABLE>
<CAPTION>

1994 1993
---- ----
<S> <C> <C>
Loss from operations before realized capital gains (losses):
Computed "expected" tax provision (benefit) $(2,440) $(2,191)
Increase (decrease) in taxes resulting from:
Reversal of equity in losses of subsidiaries 753 185
Book/tax difference in mortgage loan accretion 1,756 3,672
Reserve revaluations 1,567 1,906
Capitalization of policy acquisition costs 1,530 2,691
Limited partnership income (losses) 496 (2,633)
Utilization of AMT credit carryforwards (2,171)
Other 297 (214)
------ ------

Federal income tax provision $ 1,788 $ 3,416
====== ======

Realized capital gains (losses):
Computed "expected" tax provision (benefit) $(1,844) $11,042
Increase (decrease) in taxes resulting from:
Equity in gains (losses) of subsidiaries 1,271 (6,854)
CMO writedowns 177 1,611
Other (179) 534
------ ------

Federal income tax provision (benefit) $ (575) $ 6,333
====== ======
</TABLE>

The federal income tax returns for 1987 through 1992 are currently under
examination and there are no significant adjustments which, after
prescribed indemnifications, are expected to result from these
examinations that would materially affect the financial position of the
Company (see Note 12).

8. Postretirement Health Care and Life Insurance Benefits

The Company provides certain health care and life insurance benefits for
retired employees. Employees meeting certain age and length of service
requirements become eligible for these benefits. The expected cost of
providing these benefits is recognized as expense as claims are incurred
for retired employees and as service requirements are met for active
employees. These costs for the Company approximated $900,000 and
$1,000,000 for the years ended December 31, 1994 and 1993, respectively.
The cost of providing these benefits for retirees is not separable from
the cost of providing benefits for active employees. The Company's and its
subsidiaries' unrecognized transition obligation as of December 31, 1994
was $8.4 million and $.2 million, respectively. In 1994, the amortization
of this transition obligation was $177,000 for the Company and $50,000 for
its subsidiaries.

9. Capital and Surplus and Shareholder Dividend Restrictions

Generally, the net assets of the Company available for transfer to the
Company's parent as dividends are limited to the greater of the Company's
net gain from operations during the preceding year or 10% of the Company's
net surplus as of the end of the preceding year as determined on

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

9. Capital and Surplus and Shareholder Dividend Restrictions, continued

the basis of accounting practices prescribed or permitted by insurance
regulatory authorities. Payments of dividends in excess of such amounts
would require approval by the Texas Department. Management has given the
Texas Department assurances that the Company will not declare and pay any
dividends in 1995 without the approval of the Texas Insurance Commissioner
(see Note 13).

The net assets of the Company's insurance subsidiaries available for
transfer to the Company are subject to the same limitations. Payment of
dividends in excess of such amounts would generally require approval by
the regulatory authorities of the respective domiciliary states. At
December 31, 1994 the Company's subsidiaries had combined capital and
surplus totalling $83.7 million. For the year ended December 31, 1994 such
subsidiaries had combined net loss totalling $5.8 million.

Prescribed statutory accounting practices include state laws, regulations,
and general administrative rules, as well as a variety of publications of
the NAIC. Permitted statutory accounting practices encompass all
accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. Further-more, the NAIC has a project to codify
statutory accounting practices, the result of which is expected to
constitute the only source of "prescribed" statutory accounting practices.
Accordingly, that project, which is expected to be completed in 1996, will
likely change to some extent prescribed statutory accounting practices,
and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements.

10. Insurance Liabilities

At December 31, 1994, the withdrawal characteristics for reserve
liabilities related to investment-type contracts, including annuities and
deposit liabilities, were as follows (in thousands):
<TABLE>
<CAPTION>

Subject to discretionary withdrawal Amount Percentage

<S> <C> <C>
- With market value adjustment $ 93,489 18.6%
- At book value less surrender charge 140,220 28.0%
- At market value 4,499 .9%
-------- ------

Subtotal 238,208 47.5%

Subject to discretionary withdrawal
- without adjustment

- At book value (minimal or no charge or adjustment) 150,203 29.9%

Not subject to discretionary withdrawal provision 113,464 22.6%
-------- ------

Total annuity actuarial reserves and deposit liabilities (gross) 501,875 100.0%
=======
Less: Reinsurance 209,002
=======
Total annuity actuarial reserves and deposit liabilities (net) $292,873
=======
</TABLE>

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

10. Insurance Liabilities, continued

The estimated fair value of the liabilities for investment-type contracts
is approximately equal to the carrying value as reflected in the preceding
table at December 31, 1994, because interest rates credited to account
balances approximate current rates paid on similar investments and are
generally not guaranteed beyond one year. Fair values for the Company's
insurance contracts other than investment-type contracts are not required
to be disclosed. However, the fair values of liabilities under all
contracts are taken into consideration in the Company's overall management
of interest rate risk, which minimizes exposure to changing interest rates
through the matching of investment maturities with amounts due under
insurance contracts.

11. Reinsurance

The Company has set its retention limit for acceptance of risk on life
insurance policies at various levels up to $500,000. There are reinsurance
agreements with various unaffiliated companies whereby insurance in excess
of the Company's retention limit is reinsured. To the extent that
reinsuring companies become unable to meet their obligations under these
agreements, the Company remains contingently liable. Insurance in force
ceded at December 31, 1994 and 1993 totalled $3,170,725,000 and
$3,491,968,000, respectively. The related reserve credit taken on life
policies and contracts totalled $145,269,000 and $271,157,000,
respectively. Estimated amounts recoverable from reinsurers are
approximately $244,000 and $199,000 at December 31, 1994 and 1993,
respectively. Reinsurance premiums ceded during 1994 and 1993 were
$23,796,000 and $26,305,000, respectively.

Deposit funds and other policy and contract liabilities are shown net of
guaranteed interest contracts and other contract deposit funds ceded to a
subsidiary and an unaffiliated insurance company under reinsurance
contracts in the amount of $105,765,000 at December 31, 1994 and an
affiliate and a subsidiary under reinsurance contracts in the amount of
$158,720,000 at December 31, 1993.

Effective September 30, 1990 the Company entered into a reinsurance
agreement with an unaffiliated insurance company whereby it ceded
retroactive to March 31, 1990, 100% of certain annuity business to the
reinsurer, which in turn retroceded the business on essentially identical
terms to Marquette. Marquette subsequently retroceded the business on
essentially identical terms to its parent, CFLIC. The business involved
had a present value of $25 million, based on specific assumptions about
the future investment performance of the related assets. The reinsurance
arrangements provide for an experience refund to the Company equal to 95%
of the amount by which actual future profits on the ceded business and
related assets exceed the amounts projected in determining the $25 million
present value of the business. As of March 31, 1990 the related assets
that the Company transferred had a book value of approximately $447.8
million and a market value of approximately $413.8 million. Marquette paid
$25 million for the ceded business by assuming approximately $438.8
million of reserve liabilities (as of March 31) on that business, which
amount exceeded by $25 million the approximately $413.8 million market
value of the assets transferred to Marquette through the unaffiliated
reinsurer. The reserve liabilities ceded were subsequently reduced by
$22.1 million and Marquette returned cash to the Company in the same
amount. An additional adjustment to the amounts payable was periodically
made between the companies to reflect the effect of the adjustment in the
reserves ceded.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

11. Reinsurance, continued

On June 30, 1994 the CFLIC reinsurance agreements were terminated and the
business reinsured thereunder was recaptured by the reinsurer effective as
of April 1, 1994. Annuity reserve liabilities totalling $323,305,000 were
assumed by the reinsurer and invested assets with a fair value of
$289,414,000 were transferred by CFLIC to the reinsurer. The difference
between the reserve liabilities assumed by the reinsurer and the assets
transferred from CFLIC, totalling $33,891,000, represented the aggregate
ceding fee paid to CFLIC to effect the termination. Immediately thereafter
the Company recaptured $106,448,000 of the reserve liabilities from the
reinsurer and received invested assets from the reinsurer totalling
$93,227,000. The assets consisted of cash, short-term investments and
marketable fixed maturity investments totalling $24,740,000, CFLIC's
investment in ICH Funding and certain pass-through certificates issued by
a special purpose trust with an estimated fair value totalling
$12,528,000, collateral loans due from James M. Fail and CFSB Corporation
totalling $50,640,000 and other assets, principally mortgage loans,
totalling $5,319,000. The difference between the reserve liabilities
recaptured by the Company and the assets transferred from the reinsurer
totalling $13,221,000 represented a ceding fee paid by the Company and
reduced the reinsurer's net ceding fees incurred to effect the CFLIC
reinsurance termination to $20,670,000. The reinsurance agreement between
the Company and the reinsurer was amended to provide that the reinsurer
will be permitted to recover the net ceding fees incurred out of the
future profits on the portion of the Company's annuity business it
retained, together with interest at 2% per annum on the unamortized
balance of such ceding fees.

Effective December 31, 1994, the Company recaptured 8% of the remaining
annuity business ceded to the reinsurer. Annuity reserve liabilities
totalling $16.6 million were recaptured by the Company and cash totalling
$15 million was transferred by the reinsurer to the Company. The
difference between the reserve liabilities recaptured and the cash
transferred from the reinsurer, totalling $1.6 million, represented the
aggregate ceding fee paid to the reinsurer to effect the recapture.

The amount of the ceding fees paid to CFLIC in connection with the
recaptures were determined by management of the Company utilizing the
methodology developed by an independent actuarial firm, with appropriate
adjustments in assumptions to reflect changes in market interest rates and
other factors.

Experience refunds received from CFLIC totalled $1,445,000 for the year
ended December 1993. An experience refund was not received for the three
months ended March 31, 1994 because the business reinsured by the Company
was not profitable that quarter due principally to the sales of certain
high yield securities and lower reinvestment yields.

Effective December 31, 1991 the Company entered into a quota share
coinsurance and modified coinsurance reinsurance agreement with an
unaffiliated reinsurer. Under the terms of the treaty, the Company ceded
85% of its Traditional (non-interest sensitive) Ordinary Premium Paying
and Paid-Up Whole Life, Endowment, Term Insurance and Extended Term
insurance plans issued prior to January 1, 1991 and in force as of
December 31, 1991. The Traditional Life block of business represents
approximately $412 million in statutory reserves, $24 million in
annualized premium in force and $2.5 billion of face amount in force. The
Company received an initial ceding commission of $75 million and will be
obligated for a quarterly risk charge. The Company has the right to
recapture the ceded business with advance written notice at any time after
December 31, 1994 or at an earlier date based upon specified levels of
coinsurance reserves.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

11. Reinsurance, continued

The following reflects the effects of this reinsurance agreement at
December 31, 1994 and 1993, respectively (in thousands):
<TABLE>
<CAPTION>

1994 1993
---- ----

<S> <C> <C>
Life and annuity premiums ceded $13,034 $14,899
Reserve adjustments on reinsurance ceded and other income 5,525 4,514
Surrender benefits ceded 32,338 32,663
Decrease in reserves for supplementary contracts without life
contingencies and for dividend and coupon accumulations 11,491 13,120
Expense commissions ceded 3,910 4,361
Premium taxes ceded 261 291
Risk charge paid 1,059 1,339
Statutory surplus provided 39,731 51,222
Interest charges paid 19,010 19,241
</TABLE>

The Company entered into a reinsurance agreement with Modern American as
of September 30, 1993 whereby the Company assumed by coinsurance 100% of
Modern American's interest sensitive life insurance policies. The Company
paid an initial ceding commission of $4.3 million by receiving assets
having an admitted asset value equal to $36.7 million and reserves and
other policy liabilities on the business coinsured of $41.0 million.

The following reflects the effects of this reinsurance agreement at
December 31, 1994 and 1993, respectively (in thousands):

<TABLE>
<CAPTION>
1994 1993
---- ----

<S> <C> <C>
Life and annuity premiums assumed $2,535 $ 622
Net investment income 245 56
Death and annuity benefits assumed 1,313 393
Surrender benefits assumed 2,244 444
Other benefits assumed 9 2
Commissions assumed 91 29
General expenses assumed 503 131
Insurance taxes, licenses and fees assumed 51 12
</TABLE>

Effective December 31, 1991 the Company entered into as assumption
reinsurance agreement with Union Bankers whereby it sold 100% of a block
of interest sensitive life business written in the State of Michigan to
Union Bankers. This block of business was acquired from an unaffiliated
insurer. The Company then assumed this business from Union Bankers under a
100% coinsurance agreement (assumed treaty). This assumed treaty was
terminated at December 31, 1993 and as a result net reserve assets
transferred by the Company to Union Bankers totalled $3.2 million. The
reserve liability released amounted to $3.5 million less a recapture fee
retained by the Company of $261,000.

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

12. Commitments, Litigation and Contingent Liabilities

At December 31, 1994, the Company had a lease covering certain of its
administrative office facilities which was to expire November 30, 1995. In
March 1995 the Company signed a lease which effectively extends its lease
commitment to November 30, 1997. Minimum rental commitments under the
leases total $7.5 million.

In July 1994 the IRS completed its examination of the Modern American
consolidated group for the tax years 1986 through 1989 and issued Notices
of Proposed Deficiencies totalling approximately $127.7 million, before
interest. A substantial portion of the proposed deficiencies involved the
deductibility of interest expense on certain surplus debentures that were
owed to SLC by Modern American and Great Southern Life Insurance Company.
Although the surplus notes in question were not held by the other members
of the Modern American consolidated tax return, all insurance companies
that were included in the consolidated tax return are jointly and
severally liable for any and all taxes that are ultimately assessed by the
IRS. However, Modern American protested this issue and subsequent to
year-end 1994 reached a tentative settlement for the tax years 1986
through 1989 which will allow a full deduction for interest expense on
surplus debentures. The tentative settlement is subject to final approval
by the congressional Joint Committee on Taxation. Management believes
that, after prescribed indemnifications, the Company has adequately
provided for its exposure to potential tax liabilities that might arise
from the tentative settlement.

The IRS has not completed its examination for the years 1990 through 1992
and therefore has not issued preliminary Notices of Deficiencies for those
years. Further, based on the current status of the examination of 1990
through 1992, no issues have been brought to the attention of management
that would result in a substantial liability for taxes and interest.

From time to time assessments are levied on the Company and its
subsidiaries by the life and health guaranty associations of states in
which they are licensed to do business. Such assessments are made
primarily to cover the losses of policyholders of insolvent or
rehabilitated insurers. In some states, these assessments can be partially
recovered through a reduction in future premium taxes. The Company paid or
accrued assessments in 1994 and 1993 totalling $1,641,000 and $2,636,000,
respectively, and its subsidiaries paid assessments totalling $467,000 and
$111,000, respectively. Based on information currently available,
management believes that any future assessments are not reasonably likely
to have a material adverse effect on the Company or its subsidiaries.

Various lawsuits and claims are pending against the Company and its
subsidiaries. Based in part upon the opinion of counsel as to the ultimate
disposition of these matters, management believes that the liability, if
any, will not be material.

13. Regulatory Matters

On September 24, 1993, the Company, SLC and Union Bankers entered into a
letter agreement with the Texas Department. This letter agreement
supersedes a letter agreement dated March 31, 1993 between the parties.
Both the Company and Union Bankers agreed that they would not enter into
any financial reinsurance agreement without prior notice to the Texas
Department. In addition, the Company agreed, among other things, that it
would 1) give the Texas Department at least 30 days' prior notice of any
stockholder dividend, 2) limit the amount it invests in private placement
securities without the prior approval of the Texas Department, and 3) not
invest in any IO's and would

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

13. Regulatory Matters, continued

exercise commercially reasonable efforts to liquidate the IO's held by it
and its subsidiaries (see Note 3). Management has subsequently given
assurances to the Texas Department that the Company will not declare and
pay any dividends in 1995 without the approval of the Texas Insurance
Commissioner.

The Texas Department is currently conducting a financial examination of
the Company for the years 1994 and 1993.

14. Liquidity and Capital Resources of Parent Company

In January 1995, SLC, the indirect parent of the Company, suspended the
payment of dividends on certain of its securities and announced that it
had begun work on the development of a plan to reduce its debt and fixed
charges, increase its common equity and extend the maturity of any
remaining debt.

SLC stated in its Form 10-K for the year ended December 31, 1994, as filed
with the Securities and Exchange Commission on March 31, 1995, that its
ability to meet its debt obligations in 1995 and 1996 was dependent on
being able to effect a restructuring or refinancing of certain significant
debt obligations, or to sell certain assets to generate sufficient cash
proceeds to meet such debt obligations, or to obtain sufficient cash from
another source, such as an equity investor or an institutional lender.
Such restructuring or recapitalization could result in a change in control
of SLC.

15. Reconciliation to Generally Accepted Accounting Principles

A reconciliation of stockholder's equity and net income (loss) as of and
for the years ended December 31, 1994 and 1993 from the basis of
accounting as prescribed or permitted by regulatory authorities (statutory
basis) to the basis of GAAP is as follows (in thousands):

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

15. Reconciliation to Generally Accepted Accounting Principles, continued
<TABLE>
<CAPTION>

December 31,
1994 1993
<S> <C> <C>
Stockholder's equity:
Per statutory basis $ 116,956 $ 143,086
Adjustments for:
DAC and PVFP of acquired business 148,220 97,123
Excess cost 77,650 297,344
Statutory asset valuation reserves 25,740 25,936
Financial reinsurance (39,731) (51,222)
Deferred income tax asset 58,096 26,859
Difference in carrying value of subsidiaries (10,153) 25,471
Due from reinsurers 198,762 353,115
Difference in carrying values of invested assets net
of assets transferred from termination of reinsurance (196,024) 25,175
Net ceding fees incurred by the reinsurer to be
recovered from future profits on retained
annuity business 6,245
Difference in reserve and other liabilities net
of reserve liabilities transferred from
termination of reinsurance (140,534) (385,481)
Other, net 466 (4,277)
--------- --------

Stockholder's equity in accordance with GAAP $ 245,693 $ 553,129
======= =======
</TABLE>

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY

Notes to Statutory Financial Statements, continued

15. Reconciliation to Generally Accepted Accounting Principles, continued
<TABLE>
<CAPTION>

December 31,
1994 1993
<S> <C> <C>
Net income (loss):
Per statutory basis $ (14,868) $ 24,534
Adjustments for:
Amortization of deferred policy acquisition costs
and present value of future profits of acquired
business (23,916) (6,176)
Amortization of excess cost change in
accounting method in 1994 (219,693) (9,010)
Due and deferred premiums and loading (1,201) (390)
Financial reinsurance 11,491 13,120
Equity in earnings of subsidiaries (22,245) (2,492)
Deferred income tax benefit 4,841 (2,400)
Realized capital gains 9,342 (13,111)
Federal income tax benefit 17,981 (5,600)
Writedown of CMO's (25,819)
Increase in reserves net of reinsurance 20,577 22,510
Increase in reserves from reinsurance 123,030 36,737
Gross investment income 1,177 2,194
Reserve assets received from reinsurance (108,227) (36,737)
Reserves on real estate (264) (3,000)
Carrying value of residual interests 1,570 (4,519)
Other, net (1,658) 181
-------- --------

Net income (loss) in accordance with GAAP $(227,882) $ 15,841
========= ========
</TABLE>

16. Reconciliation to Annual Statement

Following is a reconciliation of net income (loss) as reported in the
Company's 1994 and 1993 Annual Statement filed with regulatory authorities
to that reported herein (in thousands):
<TABLE>
<CAPTION>

Years Ended December 31,
1994 1993

Net income (loss):

<S> <C> <C>
Per statement filed with regulatory authorities $(14,868) $18,375
Change in equity in realized capital losses
of subsidiaries 5,599
Realized capital gains (losses) 560
------ ------

Net income (loss) $(14,868) $24,534
====== ======
</TABLE>

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY
Schedule of Selected Financial Data
December 31, 1994
(In Thousands)

The following is a summary of certain financial data included in other
exhibits and schedules subjected to audit procedures by independent
accountants and utilized by actuaries in the determination of reserves (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
Investment Income Earned

<S> <C>
Government Bonds $ 16,059
Other bonds (unaffiliated) 52,061
Common stocks (unaffiliated) 6
Common stocks of affiliates (2,152)
Mortgage loans 11,702
Real estate 3,900
Premium notes, policy loans and liens 7,832
Collateral loans 5,373
Short-term investments 1,700
Other invested assets 4,880
Aggregate write-ins for investment income 2,055
----------
Gross investment income $ 103,416
=========

Real estate owned - book value less encumbrances $ 29,371
==========

Mortgage loans - book value:
Residential mortgages $ 5,212
Commercial mortgages 118,106
---------
Total Mortgage loans $ 123,318
=========

Mortgage loans by standing - book value:
Good standing $ 95,470
=========
Good standing with structured terms $ 23,068
=========
Interest overdue more than three months, not in foreclosure $ 3,800
==========
Foreclosure in process $ 980
==========

Collateral loans $ 49,465
=========

Bonds and stocks of parents, subsidiaries and affiliates - book value
Common stocks $ 97,450
=========

Bonds and short-term investments by class and maturity:

Bonds and short-term by maturity - statement value
Due within one year less $ 73,543
Over 1 year through 5 years 185,708
Over 5 years through 10 years 256,329
Over 10 years through 20 years 227,514
Over 20 years 202,432
---------
Total by maturity $ 945,526
=========
</TABLE>

<PAGE>

SOUTHWESTERN LIFE INSURANCE COMPANY
Schedule of Selected Financial Data
(Continued)
December 31, 1994
(In Thousands)
<TABLE>
<CAPTION>

Year Ended
December 31, 1994
<S> <C>
Bonds and short-term by class - statement value:

Class 1 $ 669,244
Class 2 214,232
Class 3 48,337
Class 4 6,952
Class 5 6,492
Class 6 269
---------
Total by class $ 945,526
=========
Total bonds and short-term publicly traded $ 860,584
=========
Total bonds and short-term privately placed $ 84,942
=========

Common stocks - market value $ 85,263
=========
Short-term investments - book value $ 32,697
=========
Cash on deposit $ 17,498
=========

Life insurance in force:
Ordinary $9,340,812
=========

Amount of accidental death insurance in force
under ordinary policies $ 549,094
=========

Life insurance policies with disability provision in force:
Ordinary $1,343,752
=========

Supplementary contracts in force:
Ordinary - not involving life contingencies 1
==========
Amount on deposit $ 8,389
==========
Income payable $ 1,341
==========

Ordinary - involving life contingencies 5
==========
Income payable $ 8,608
==========
Annuities:
Ordinary:
Immediate - amount of income payable $ 3,117
==========
Deferred - fully paid - account balance $ 117,877
==========
Deferred - not fully paid - account balance $ 44,676
==========

Group:

Amount of income payable $ 1,209
==========
Fully paid - account balance $ 5,785
==========
Not fully paid - account balance $ 17,989
=========

Deposit funds and dividend accumulations:
Deposit funds - account balance $ 10,221
=========
Dividend accumulations - account balance $ 182
==========
</TABLE>

<PAGE>
Exhibit B

SCUDDER VARIABLE LIFE INVESTMENT FUND

Two International Place

Boston, Massachusetts 02110-4103

An open-end management investment company which currently offers
shares of beneficial interest of six diversified Portfolios, one of
which is offered herein, which seeks long-term capital growth from a
a portfolio consisting primarily of equity securities.

(A Mutual Fund)

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

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1995

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

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Variable Life Investment
Fund dated May 1, 1995, as may be amended from time to time, a copy of which may
be obtained without charge by calling a Participating Insurance Company or by
writing to broker/dealers offering certain variable annuity contracts and
variable life insurance policies, or Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103.

<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES....................................................................................1

POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS..................................................................2
Repurchase Agreements........................................................................................2
Convertible Securities.......................................................................................2
Depositary Receipts..........................................................................................3
Foreign Securities...........................................................................................4
Limitations on Holdings of Foreign Securities................................................................5
When-Issued Securities.......................................................................................5
Loans of Portfolio Securities................................................................................5
Borrowing....................................................................................................5
Options......................................................................................................6
Securities Index Options.....................................................................................7
Futures Contracts............................................................................................8
Futures on Debt Securities...................................................................................8
Limitations on the Use of Futures Contracts and Options on Futures..........................................10
Foreign Currency Transactions...............................................................................11
High Yield, High Risk Securities............................................................................12
Combined Transactions.......................................................................................13
Risks of Specialized Investment Techniques Abroad...........................................................13

INVESTMENT RESTRICTIONS..............................................................................................13

PURCHASES AND REDEMPTIONS............................................................................................14

INVESTMENT ADVISER AND DISTRIBUTOR...................................................................................15
Investment Adviser..........................................................................................15
Personal Investments by Employees of the Adviser............................................................17
Distributor.................................................................................................17

MANAGEMENT OF THE FUND...............................................................................................18
Trustees and Officers.......................................................................................18
Remuneration................................................................................................20

NET ASSET VALUE......................................................................................................21

TAX STATUS...........................................................................................................22

DIVIDENDS AND DISTRIBUTIONS..........................................................................................26

PERFORMANCE INFORMATION..............................................................................................26
Comparison of Portfolio Performance.........................................................................27

SHAREHOLDER COMMUNICATIONS...........................................................................................30

ORGANIZATION AND CAPITALIZATION......................................................................................31
General.....................................................................................................31
Shareholder and Trustee Liability...........................................................................32

ALLOCATION OF PORTFOLIO BROKERAGE....................................................................................32

PORTFOLIO TURNOVER...................................................................................................33

EXPERTS..............................................................................................................34

i
<PAGE>
TABLE OF CONTENTS (continued)
Page

COUNSEL..............................................................................................................34

ADDITIONAL INFORMATION...............................................................................................34

FINANCIAL STATEMENTS.................................................................................................34

APPENDIX
Description of Bond Ratings
Description of Commercial Paper Ratings
</TABLE>

ii
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

(See "INVESTMENT CONCEPT OF THE FUND" and
"INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO"
in the Fund's prospectus.)

Scudder Variable Life Investment Fund (the "Fund") is an open-end,
diversified registered management investment company established as a
Massachusetts business trust. The Fund is a series fund consisting of six
diversified series, one of which, the Capital Growth Portfolio (the "Portfolio")
is offered herein. Additional portfolios may be created from time to time. The
Fund is intended to be the funding vehicle for variable annuity contracts ("VA
contracts") and variable life insurance policies ("VLI policies") to be offered
to the separate accounts of certain life insurance companies ("Participating
Insurance Companies").

The investment objective and policies of the Portfolio may, unless
otherwise specifically stated, be changed by the Trustees of the Fund without a
vote of the shareholders. There is no assurance that the objective of the
Portfolio will be achieved.

The Portfolio seeks to maximize long-term capital growth through a
broad and flexible investment program. The Portfolio invests in marketable
securities, principally common stocks and, consistent with its objective of
long-term capital growth, preferred stocks. However, in order to reduce risk, as
market or economic conditions periodically warrant, the Portfolio may also
invest up to 25% of its assets in short-term debt instruments.

Important considerations to the Fund's investment adviser, Scudder,
Stevens & Clark, Inc. (the "Adviser") in its examination of potential
investments include certain qualitative considerations such as a company's
financial strength, management reputation, absolute size and overall industry
position.

Equity investments can have diverse financial characteristics, and the
Trustees believe that the opportunity for capital growth may be found in many
different sectors of the market at any particular time. In contrast to the
specialized investment policies of some capital appreciation funds, the
Portfolio is therefore free to invest in a wide range of marketable securities
offering the potential for growth. This enables the Portfolio to pursue
investment values in various sectors of the stock market, including:

1. Companies that generate or apply new technologies, new and
improved distribution techniques, or new services, such as
those in the business equipment, electronics, specialty
merchandising, and health service industries.

2. Companies that own or develop natural resources, such as
energy exploration or precious metals companies.

3. Companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunications companies.

4. Foreign companies.

While emphasizing investments in companies with above-average growth
prospects, the Portfolio may also purchase and hold equity securities of
companies that may have only average growth prospects, but seem undervalued due
to factors thought to be of a temporary nature which may cause their securities
to be out of favor and to trade at a price below their potential value.

The Portfolio, as a matter of nonfundamental policy, may invest up to
20% of its net assets in intermediate to longer term debt securities when
management anticipates that the total return on debt securities is likely to
equal or exceed the total return on common stocks over a selected period of
time. The Portfolio may purchase investment-grade debt securities, which are
those rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"), or
AAA, AA, A or BBB by Standard & Poor's ("S&P"), or, if unrated, of equivalent
quality as determined by the Adviser. Bonds that are rated Baa by Moody's or BBB
by S&P have some speculative characteristics. The Portfolio's intermediate to
<PAGE>
longer term debt securities may also include those which are rated below
investment grade as long as no more than 5% of its net assets are invested in
such securities. As interest rates fall the prices of debt securities tend to
rise and vice versa. Should the rating of a security held by the Portfolio be
downgraded after the time of purchase, the Adviser will determine whether it is
in the best interest of the Portfolio to retain or dispose of the security. (See
"High Yield, High Risk Securities".)

The Portfolio cannot guarantee a gain or eliminate the risk of loss.
The net asset value of the shares of the Portfolio will increase or decrease
with changes in the market price of the Portfolio's investments and, to a lesser
extent, changes in foreign currency exchange rates.

POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO

(See "POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO"
in the Fund's prospectus.)

Repurchase Agreements

The Portfolio may enter into repurchase agreements with member banks of
the Federal Reserve System, any foreign bank and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Adviser to be at least
equal to that of issuers of commercial paper rated within the two highest
categories assigned by Moody's or S&P. A repurchase agreement with a member bank
of the Federal Reserve System, which provides a means for the Portfolio to earn
income on funds for periods as short as overnight, is an arrangement through
which the Portfolio acquires a U.S. Government or other high quality short-term
debt obligation (the "Obligation") and the seller agrees, at the time of sale,
to repurchase the Obligation at a specified time and price. A repurchase
agreement with foreign banks may be available with respect to government
securities of the particular foreign jurisdiction. The repurchase price may be
higher than the purchase price, the difference being income to the Portfolio, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Portfolio together with the repurchase price on repurchase. In
either case, the income to the Portfolio is unrelated to the interest rate on
the Obligation subject to the repurchase agreement. For purposes of the
Investment Company Act of 1940 (the "1940 Act"), a repurchase agreement is
deemed to be a loan from the Portfolio to the seller of the Obligation subject
to the repurchase agreement and is therefore subject to the Portfolio's
investment restriction applicable to loans. It is not clear whether a court
would consider the Obligation purchased by the Portfolio subject to a repurchase
agreement as being owned by the Portfolio or as being collateral for a loan by
the Portfolio to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the Obligation before
repurchase of the Obligation under a repurchase agreement, the Portfolio may
encounter delay and incur costs before being able to sell the security. Delays
may involve loss of interest or decline in price of the Obligation. If the court
characterizes the transaction as a loan and the Portfolio has not perfected a
security interest in the Obligation, the Portfolio may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Portfolio would be at the risk of losing
some or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Portfolio, the Fund seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, if the market
value of the Obligation subject to the repurchase agreement becomes less than
the repurchase price (including interest), the Portfolio will direct the seller
of the Obligation to deliver additional securities so that the market value of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Portfolio will be unsuccessful in
seeking to impose on the seller a contractual obligation to deliver additional
securities.

Convertible Securities

The Portfolio may invest in convertible securities; that is, bonds,
notes, debentures, preferred stocks and other securities which are convertible
into common stock. Investments in convertible securities can provide an
opportunity for capital appreciation and/or income through interest and dividend
payments by virtue of their conversion or exchange features.

2
<PAGE>
The convertible securities in which the Portfolio may invest include
fixed-income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

As fixed income securities, convertible securities are investments
which provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all fixed income securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.

Convertible securities are generally subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.

Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes ("LYONs"). Zero coupon securities pay no cash income and are sold
at substantial discounts from their value at maturity. When held to maturity,
their entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follows the
movements in the market value of the underlying common stock. Zero coupon
convertible securities are generally expected to be less volatile than the
underlying common stocks as they are usually issued with short to medium length
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.

Depositary Receipts

The Portfolio may invest indirectly in securities of foreign issuers
through sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") and
other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs are
hereinafter referred to as "Depositary Receipts"). Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the stock of
unsponsored Depositary Receipts are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depositary Receipts. ADRs
are typically issued by a United States bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States corporation.
Generally, Depositary Receipts in registered form are designed for use in the
United States securities markets and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. For purposes
of the Portfolio's investment policies, the Portfolio's investments in ADRs,
GDRs and other types of Depositary Receipts will be deemed to be investments in
the underlying securities. Depositary Receipts other than those denominated in

3
<PAGE>
U.S. dollars will be subject to foreign currency exchange rate risk. Certain
Depositary Receipts may not be listed on an exchange and therefore may be
illiquid securities.

Foreign Securities

The Portfolio may invest, without limit, except as applicable to debt
securities generally, in U.S. dollar-denominated foreign debt securities
(including those issued by the Dominion of Canada and its provinces and other
debt securities which meet the criteria applicable to the Portfolio's domestic
investments), and in certificates of deposit issued by foreign banks and foreign
branches of United States banks, to any extent deemed appropriate by the
Adviser. The Portfolio may invest up to 25% of its assets in non-U.S.
dollar-denominated equity securities of foreign issuers.

Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Portfolio's performance. As foreign
companies are not generally subject to uniform accounting and auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
stock markets, while growing in volume of trading activity, have substantially
less volume than the New York Stock Exchange (the "Exchange"), and securities of
some foreign companies are less liquid and more volatile than securities of
domestic companies. Similarly, volume and liquidity in most foreign bond markets
are less than the volume and liquidity in the U.S. and at times, volatility of
price can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Portfolio are
uninvested and no return is earned thereon. The inability of the Portfolio to
make intended security purchases due to settlement problems could cause the
Portfolio to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems either could result in losses to
the Portfolio due to subsequent declines in value of the portfolio security or,
if the Portfolio has entered into a contract to sell the security, could result
in possible liability to the purchaser. Fixed commissions on some foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Portfolio will endeavor to achieve the most favorable net results
on its portfolio transactions. Further, the Portfolio may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers and listed companies than in the
U.S. It may be more difficult for the Portfolio's agents to keep currently
informed about corporate actions such as stock dividends or other matters which
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of nationalization, expropriation,
the imposition of withholding or confiscatory taxes, political, social, or
economic instability, devaluations in the currencies in which the Portfolio's
securities are denominated, or diplomatic developments which could affect U.S.
investments in those countries. Investments in foreign securities may also
entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.

These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance generally is greater in these countries than in
developed countries. The management of the Portfolio seeks to mitigate the risks
associated with these considerations through diversification and active
professional management. Although investments in companies domiciled in
developing countries may be subject to potentially greater risks than
investments in developed countries, the Portfolio will not invest in any
securities of issuers located in developing countries if the securities, in the
judgment of the Adviser, are speculative.

To the extent that the Portfolio invests in foreign securities, the
Portfolio's share price could reflect the movements of both the different stock
and bond markets in which it is invested and the currencies in which the

4
<PAGE>
investments are denominated; the strength or weakness of the U.S. dollar against
foreign currencies could account for part of the Portfolio's investment
performance.

Limitations on Holdings of Foreign Securities

The Portfolio shall invest in no less than five foreign countries;
provided that, (i) if foreign securities comprise less than 80% of the value of
the Portfolio's net assets, the Portfolio shall invest in no less than four
foreign countries; (ii) if foreign securities comprise less than 60% of the
value of the Portfolio's net assets, the Portfolio shall invest in no less than
three foreign countries; (iii) if foreign securities comprise less than 40% of
the value of the Portfolio's net assets, the Portfolio shall invest in no less
than two foreign countries; and (iv) if foreign securities comprise less than
20% of the value of the Portfolio's net assets the Portfolio may invest in a
single foreign country.

The Portfolio shall invest no more than 20% of the value of its net
assets in securities of issuers located in any one country; provided that an
additional 15% of the value of the Portfolio's net assets may be invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom and Germany; and provided further that
100% of the Portfolio's assets may be invested in securities of issuers located
in the United States.

When-Issued Securities

The Portfolio may from time to time purchase securities on a
"when-issued" or "forward delivery" basis. Debt securities are often issued on
this basis. The price of such securities, which may be expressed in yield terms,
is fixed at the time a commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities take place at a later date.
During the period between purchase and settlement, no payment is made by the
Portfolio and no interest accrues to the Portfolio. To the extent that assets of
the Portfolio are held in cash pending the settlement of a purchase of
securities, the Portfolio would earn no income; however, it is the Fund's
intention that the Portfolio will be fully invested to the extent practicable
and subject to the policies stated above. While when-issued or forward delivery
securities may be sold prior to the settlement date, the Portfolio intends to
purchase such securities with the purpose of actually acquiring them unless a
sale appears desirable for investment reasons. At the time the Fund makes the
commitment on behalf of the Portfolio to purchase a security on a when-issued or
forward delivery basis, it will record the transaction and reflect the amount
due and the value of the security in determining the Portfolio's net asset
value. The market value of the when-issued or forward delivery securities may be
more or less than the purchase price payable at settlement date. The Fund does
not believe that the Portfolio's net asset value or income will be adversely
affected by the purchase of securities on a when-issued or forward delivery
basis. The Portfolio will establish a segregated account in which it will
maintain cash, U.S. Government securities and other high-grade debt obligations
at least equal in value to commitments for when-issued or forward delivery
securities. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date.

Loans of Portfolio Securities

The Fund may lend the portfolio securities of the Portfolio provided:
(1) the loan is secured continuously by collateral consisting of U.S. Government
securities, cash or cash equivalents adjusted daily to have market value at
least equal to the current market value of the securities loaned; (2) the Fund
may at any time call the loan and regain the securities loaned; (3) the
Portfolio will receive any interest or dividends paid on the loaned securities;
and (4) the aggregate market value of securities loaned will not at any time
exceed one-third of the total assets of the Portfolio. In addition, it is
anticipated that the Portfolio may share with the borrower some of the income
received on the collateral for the loan or that it will be paid a premium for
the loan. Before the Portfolio enters into a loan, the Adviser considers all
relevant facts and circumstances including the creditworthiness of the borrower.

Borrowing

The Board of Trustees has adopted a policy whereby the Portfolio may
borrow up to 10% of its total assets; provided, however, that the Portfolio may
borrow up to 25% of its total assets for extraordinary or emergency purposes,
including the facilitation of redemptions. The Portfolio may only borrow money
from banks as a temporary measure for extraordinary or emergency purposes (the
Portfolio is required to maintain asset coverage (including borrowings) of 300%

5
<PAGE>
for all borrowings) and no purchases of securities for the Portfolio will be
made while borrowings of the Portfolio exceed 5% of the Portfolio's assets.
Borrowings by the Fund increase exposure to capital risk. In addition, borrowed
funds are subject to interest costs that may offset or exceed the return earned
on investment of such funds.

Options

The Portfolio may write covered call options on the portfolio
securities of the Portfolio in an attempt to enhance investment performance. A
call option is a contract generally having a duration of nine months or less
which gives the purchaser of the option, in return for a premium paid, the right
to buy, and the writer the obligation to sell, the underlying security at the
exercise price at any time upon the assignment of an exercise notice prior to
the expiration of the option, regardless of the market price of the security
during the option period. A covered call option is an option written on a
security which is owned by the writer throughout the option period.

The Portfolio will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return. In return for the premium income, the Portfolio will give up the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price so long as its obligations under the contract
continue, except insofar as the premium represents a profit. Moreover, in
writing the option, the Portfolio will retain the risk of loss should the price
of the security decline, which loss the premium is intended to offset in whole
or in part. Unlike the situation in which the Fund owns securities not subject
to a call option, the Fund, in writing call options, must assume that the call
may be exercised at any time prior to the expiration of its obligations as a
writer, and that in such circumstances the net proceeds realized from the sale
of the underlying securities pursuant to the call may be substantially below the
prevailing market price. The Fund may forego the benefit of appreciation in its
Portfolio on securities sold pursuant to call options.

When the Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period, generally ranging up to nine months. Some of the options
which the Fund writes may be of the European type which means they may be
exercised only at a specified time. If the option expires unexercised, the
Portfolio will realize income in an amount equal to the premium received for the
written option. If the option is exercised, a decision over which the Portfolio
has no control, the Portfolio must sell the underlying security to the option
holder at the exercise price. By writing a covered call option, the Portfolio
forgoes, in exchange for the premium less the commission ("net premium"), the
opportunity to profit during the option period from an increase in the market
value of the underlying security above the exercise price.

The Portfolio may write covered call and put options to a limited
extent on its portfolio securities in an attempt to earn additional income on
its portfolio, consistent with its investment objective. The Portfolio may
forego the benefits of appreciation on securities sold or depreciation on
securities acquired pursuant to call and put options written by the Portfolio.
The Portfolio has no current intention of writing options on more than 5% of its
net assets.

When the Portfolio writes a put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. Some of the
European type options which the Fund writes may be exercised only at a specified
time. If the option expires unexercised, the Portfolio will realize income in
the amount of the premium received for writing the option. If the put option is
exercised, a decision over which the Portfolio has no control, the Portfolio
must purchase the underlying security from the option holder at the exercise
price. By writing a put option, the Portfolio, in exchange for the net premium
received, accepts the risk of a decline in the market value of the underlying
security below the exercise price. With respect to each put option it writes,
the Portfolio will have deposited in a separate account with its custodian U.S.
Treasury obligations, high-grade debt securities or cash equal in value to the
exercise price of the put option, will have purchased a put option with a higher
exercise price that will expire no earlier than the put option written or will
have used some combination of these two methods. The Fund on behalf of the
Portfolio, will only write put options involving securities for which a
determination is made that it wishes to acquire the securities at the exercise
price at the time the option is written.

6
<PAGE>
The Portfolio may terminate its obligation as a writer of a call option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction."

When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the Portfolio
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.

The Portfolio may purchase call options on any securities in which it
may invest in anticipation of an increase in the market value of such
securities. The purchase of a call option would entitle the Portfolio, in
exchange for the premium paid, to purchase a security at a specified price
during the option period. The Portfolio would ordinarily have a gain if the
value of the securities increased above the exercise price sufficiently to cover
the premium and would have a loss if the value of the securities remained at or
below the exercise price during the option period.

The Portfolio will normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held by the Portfolio, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the
Portfolio's portfolio securities. Put options may also be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.

The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. Exchange markets in
securities options are a relatively new and untested concept. It is impossible
to predict the volume of trading that may exist in such options, and there can
be no assurance that viable exchange markets will develop or continue.

The Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately
thirty broker-dealers make these markets and the Adviser will consider risk
factors such as their creditworthiness when determining a broker-dealer with
which to engage in options transactions. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. Written over-the-counter
options purchased by the Fund and portfolio securities "covering" the Fund's
obligation pursuant to an over-the-counter option may be deemed to be illiquid
and may not be readily marketable. The Adviser will monitor the creditworthiness
of dealers with whom the Fund enters into such options transactions under the
general supervision of the Fund's Trustees.

Securities Index Options

The Portfolio may purchase call and put options on securities indexes
for the purpose of hedging against the risk of unfavorable price movements
adversely affecting the value of the Portfolio's securities. Options on
securities indexes are similar to options on stock except that the settlement is
made in cash.

7
<PAGE>
Unlike a securities option, which gives the holder the right to
purchase or sell a specified security at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of the
option and the value of the underlying securities index on the exercise date,
multiplied by (ii) a fixed "index multiplier." In exchange for undertaking the
obligation to make such cash payment, the writer of the securities index option
receives a premium.

A securities index fluctuates with changes in the market values of the
securities so included. Some securities index options are based on a broad
market index such as the S&P 500 or the N.Y.S.E. Composite Index, or a narrower
market index such as the S&P 100. Indices are also based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options on securities indexes are currently traded on exchanges
including the Chicago Board Options Exchange, Philadelphia Exchange, New York
Stock Exchange, and American Stock Exchange.

The effectiveness of hedging through the purchase of securities index
options will depend upon the extent to which price movements in the portion of
the securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities holdings of the Portfolio will not exactly match the composition of
the securities indexes on which options are written. In addition, the purchase
of securities index options involves essentially the same risks as the purchase
of options on futures contracts. The principal risk is that the premium and
transactions costs paid by the Portfolio in purchasing an option will be lost as
a result of unanticipated movements in prices of the securities comprising the
securities index on which the option is written. Options on securities indexes
also entail the risk that a liquid secondary market to close out the option will
not exist, although the Portfolio will generally only purchase or write such an
option if the Adviser believes the option can be closed out.

Futures Contracts

The Portfolio may purchase and sell securities index futures to hedge
the equity securities of the Portfolio with regard to market (systematic) risk
as distinguished from stock-specific risk. The Portfolio may also purchase and
write put and call options on futures contracts of the type which the Portfolio
is authorized to enter into and may engage in related closing transactions. All
of such futures on debt securities, stock index futures and related options will
be traded on exchanges that are licensed and regulated by the Commodity Futures
Trading Commission ("CFTC") or on appropriate foreign exchanges, to the extent
permitted by law.

Futures on Debt Securities

A futures contract on a debt security is a binding contractual
commitment which, if held to maturity, will result in an obligation to make or
accept delivery, during a particular future month, of securities having a
standardized face value and rate of return. By purchasing futures on debt
securities--assuming a "long" position--the Portfolio will legally obligate
itself to accept the future delivery of the underlying security and pay the
agreed price. By selling futures on debt securities--assuming a "short"
position--it will legally obligate itself to make the future delivery of the
security against payment of the agreed price. Open futures positions on debt
securities will be valued at the most recent settlement price, unless such price
does not appear to the Trustees to reflect the fair value of the contract, in
which case the positions will be valued by or under the direction of the
Trustees.

Positions taken in the futures markets are normally not held to
maturity, but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While futures positions taken by the Portfolio
will usually be liquidated in this manner, the Fund may instead make or take
delivery of the underlying securities whenever it appears economically
advantageous to the Portfolio to do so. A clearing corporation associated with
the exchange on which futures are traded assumes responsibility for closing-out
and guarantees that the sale and purchase obligations will be performed with
regard to all positions that remain open at the termination of the contract.

Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. The Portfolio may, for example, take a "short" position in
the futures market by selling contracts for the future delivery of debt
securities held by the Portfolio (or securities having characteristics similar

8
<PAGE>
to those held by the Portfolio) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the Portfolio's
portfolio securities. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position.

On other occasions, the Portfolio may take a "long" position by
purchasing futures on debt securities. This would be done, for example, when the
Fund intends to purchase for the Portfolio particular securities when it has the
necessary cash, but expects the rate of return available in the securities
markets at that time to be less favorable than rates currently available in the
futures markets. If the anticipated rise in the price of the securities should
occur (with its concomitant reduction in yield), the increased cost to the
Portfolio of purchasing the securities will be offset, at least to some extent,
by the rise in the value of the futures position taken in anticipation of the
subsequent securities purchase.

Stock Index Futures. A stock index futures contract does not require the
physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the future is based. That
index is designed to reflect overall price trends in the market for equity
securities.

Stock index futures may be used to hedge the equity securities of the
Portfolio with regard to market (systematic) risk (involving the market's
assessment of over-all economic prospects), as distinguished from stock-specific
risk (involving the market's evaluation of the merits of the issuer of a
particular security). By establishing an appropriate "short" position in stock
index futures, the Fund may seek to protect the value of the equity of the
Portfolio's securities against an overall decline in the market for equity
securities. Alternatively, in anticipation of a generally rising market, the
Fund can seek on behalf of the Portfolio to avoid losing the benefit of
apparently low current prices by establishing a "long" position in stock index
futures and later liquidating that position as particular equity securities are
in fact acquired. To the extent that these hedging strategies are successful,
the Portfolio will be affected to a lesser degree by adverse overall market
price movements, unrelated to the merits of specific portfolio equity
securities, than would otherwise be the case.

Options on Futures. For bona fide hedging purposes, the Portfolio may also
purchase and write call and put options on futures contracts, which are traded
on exchanges that are licensed and regulated by the CFTC or on any foreign
exchange for the purpose of options trading, to the extent permitted by law. A
"call" option on a futures contract gives the purchaser the right, in return for
the premium paid, to purchase a futures contract (assume a "long" position) at a
specified exercise price at any time before the option expires. A "put" option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a "short" position), for a specified exercise price, at any
time before the option expires.

Upon the exercise of a "call," the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a "put,"
the writer of the option is obligated to purchase the futures contract (deliver
a "short" position to the option holder) at the option exercise price, which
will presumably be higher than the current market price of the contract in the
futures market. When a person exercises an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," his gain will be credited to his futures margin account, while the loss
suffered by the writer of the option will be debited to his account. However, as
with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the holder of an option will usually realize a gain or loss by buying
or selling an offsetting option at a market price that will reflect an increase
or a decrease from the premium originally paid.

Options on futures can be used by the Portfolio to hedge substantially
the same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If the Portfolio purchases an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself. But in contrast to a futures transaction, in which

9
<PAGE>
only transaction costs are involved, benefits received in an option transaction
will be reduced by the amount of the premium paid as well as by transaction
costs. In the event of an adverse market movement, however, the Portfolio will
not be subject to a risk of loss on the option transaction beyond the price of
the premium it paid plus its transaction costs, and may consequently benefit
from a favorable movement in the value of its portfolio securities that would
have been more completely offset if the hedge had been effected through the use
of futures.

If the Portfolio writes options on futures contracts, the Portfolio
will receive a premium but will assume a risk of adverse movement in the price
of the underlying futures contract comparable to that involved in holding a
futures position. If the option is not exercised, the Portfolio will gain the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held in or to be acquired for the Portfolio. If the option
is exercised, the Portfolio will incur a loss in the option transaction, which
will be reduced by the amount of the premium it has received, but which may
partially offset favorable changes in the value of its portfolio securities.

While the holder or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, the Portfolio's ability to establish and close out options
positions at fairly established prices will be subject to the maintenance of a
liquid market. The Portfolio will not purchase or write options on futures
contracts unless, in the Adviser's opinion, the market for such options has
sufficient liquidity that the risks associated with such options transactions
are not at unacceptable levels.

Limitations on the Use of Futures Contracts and Options on Futures

All of the futures contracts and options on futures transactions into
which the Fund will enter will be for bona fide hedging or other appropriate
risk management purposes as permitted by CFTC regulations and to the extent
consistent with requirements of the Securities and Exchange Commission (the
"SEC").

To ensure that its futures and options transactions meet this standard,
the Fund will enter into them only for the purposes or with the intent specified
in CFTC regulations, subject to the requirements of the SEC. The Fund will
further seek to assure that fluctuations in the price of the futures contracts
and options on futures that it uses for hedging purposes will be substantially
correlated to fluctuations in the price of the securities held by the Portfolio
or which it expects to purchase, though there can be no assurance that this
result will be achieved. The Fund will sell futures contracts or acquire puts to
protect against a decline in the price of securities that the Portfolio owns.
The Fund will purchase futures contracts or calls on futures contracts to
protect the Portfolio against an increase in the price of securities the Fund
intends later to purchase for the Portfolio before it is in a position to do so.

As evidence of this hedging intent, the Fund expects that on 75% or
more of the occasions on which it purchases a long futures contract or call
option on futures for the Portfolio the Fund will effect the purchase of
securities in the cash market or take delivery as it closes out the Portfolio's
futures position. In particular cases, however, when it is economically
advantageous to the Portfolio, a long futures position may be terminated (or an
option may expire) without the corresponding purchase of securities.

As an alternative to literal compliance with the bona fide hedging
definition, a CFTC definition now permits the Fund to elect to comply with a
different test, under which its long futures positions will not exceed the sum
of (a) cash or cash equivalents segregated for this purpose, (b) cash proceeds
on existing investments due within thirty days and (c) accrued profits on the
particular futures or options positions. However, the Fund will not utilize this
alternative unless it is advised by counsel that to do so is consistent with the
requirements of the SEC.

Futures on debt securities and stock index futures are at present
actively traded on exchanges that are licensed and registered by the CFTC, or
consistent with the CFTC regulations on foreign exchanges. The Portfolio will
incur brokerage fees in connection with its futures and options transactions,
and will be required to deposit and maintain funds with brokers as margin to
guarantee performance of futures obligations. In addition, while futures
contracts and options on futures will be purchased and sold to reduce certain
risks, those transactions themselves entail certain other risks. Thus, while the
Portfolio may benefit from the use of futures and options on futures,
unanticipated changes in interest rates or stock price movements may result in a
poorer overall performance for the Portfolio than if it had not entered into any
futures contracts or options transactions. Moreover, in the event of an

10
<PAGE>
imperfect correlation between the futures position and the portfolio position
which is intended to be protected, the desired protection may not be obtained
and the Portfolio may be exposed to risk of loss.

The Portfolio, in dealing in futures contracts and options on futures,
is subject to the 300% asset coverage requirement for borrowings set forth under
"Investment Restrictions" in the Fund's prospectus. The Trustees have also
adopted a policy (which is not fundamental and may be modified by the Trustees
without a shareholder vote) that, immediately after the purchase or sale of a
futures contract or option thereon, the value of the aggregate initial margin
with respect to all futures contracts and premiums on options on futures
contracts entered into by the Portfolio will not exceed 5% of the fair market
value of the Portfolio's total assets. Additionally, the value of the aggregate
premiums paid for all put and call options held by the Portfolio will not exceed
2% of its net assets. A futures contract for the receipt of a debt security and
long index futures will be offset by assets of the Portfolio held in a
segregated account in an amount equal to the total market value of the futures
contracts less the amount of the initial margin for the contracts.

Foreign Currency Transactions

The Portfolio may enter into forward foreign currency exchange
contracts ("forward contracts") for hedging purposes. The Portfolio may also,
for hedging purposes, purchase foreign currencies in the form of bank deposits
as well as other foreign money market instruments, including but not limited to,
bankers' acceptances, certificates of deposit, commercial paper, short-term
government and corporate obligations and repurchase agreements.

Because investments in foreign companies usually will involve
currencies of foreign countries, and because the Portfolio temporarily may hold
funds in bank deposits in foreign currencies during the completion of investment
programs, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and it may incur costs in connection with
conversions between various currencies. Although the Portfolio values its assets
daily in terms of U.S. dollars, it does not intend to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. The Portfolio will do so
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Portfolio at one
rate, while offering a lesser rate of exchange should the Portfolio desire to
resell that currency to the dealer. The Portfolio will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies.

A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.

Upon the maturity of a forward contract the Portfolio may either accept
or make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract.

The Portfolio may enter into forward contracts under certain
circumstances. When the Portfolio enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Portfolio
anticipates the receipt in a foreign currency of dividends or interest payments
on such a security which it holds, the Portfolio may desire to "lock in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Portfolio will attempt to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.

11
<PAGE>
Additionally, when management of the Portfolio believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell, for a
fixed amount of dollars, the amount of foreign currency approximating the value
of some or all of the Portfolio's securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. The precise projection of
short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of a portion of the Portfolio's
foreign assets.

The Portfolio does not intend to enter into such forward contracts to
protect the value of its portfolio securities on a regular continuous basis, and
will not do so if, as a result, the Portfolio will have more than 15% of the
value of its total assets committed to the consummation of such contracts. The
Portfolio also will not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the Portfolio believes
that it is important to have the flexibility to enter into such forward or
foreign currency futures contracts when it determines that the best interests of
the Portfolio will be served.

Except when the Portfolio enters into a forward contract for the
purpose of the purchase or sale of a security denominated in a foreign currency,
State Street Bank and Trust Company (the "Custodian"), will place cash or liquid
securities into a segregated account of the Portfolio in an amount equal to the
value of the Portfolio's total assets committed to the consummation of forward
contracts (or the Portfolio's forward contracts will be otherwise covered
consistent with applicable regulatory policies) that require the Portfolio to
purchase foreign currencies. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Portfolio's commitments with respect to such contracts.

The Portfolio generally will not enter into a forward contract with a
term of greater than one year. It also should be realized that this method of
protecting the value of the Portfolio's securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which the Portfolio can
achieve at some future point in time.

While the Portfolio will enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Thus, while the Portfolio may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Portfolio than if it had not engaged in any such
transaction. Moreover, there may be imperfect correlation between the value of
the Portfolio's holdings of securities denominated in a particular currency and
forward contracts entered into by the Portfolio. Such imperfect correlation may
prevent the Portfolio from achieving a complete hedge or expose the Portfolio to
risk of foreign exchange loss.

High Yield, High Risk Securities

The Portfolio may invest in below investment grade securities (rated Ba
and lower by Moody's and BB and lower by S&P) or unrated securities. Such
securities carry a high degree of risk and are considered speculative. The lower
the ratings of such debt securities, the greater their risks render them like
equity securities. See the Appendix to this Statement of Additional Information
for a more complete description of the ratings assigned by ratings organizations
and their respective characteristics.

As economic downturn may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates could adversely affect the value of such obligations held by the
Portfolio. Prices and yields of high yield securities will fluctuate over time
and may affect the Portfolio's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.

12
<PAGE>
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Trustees to value high yield securities accurately in the Portfolio and to
dispose of those securities. Adverse publicity and investor perceptions may
decrease the values and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs.

Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the
Portfolio's investment objective may be more dependent on the Adviser's credit
analysis than is the case for higher quality bonds. Should the rating of a
portfolio security be downgraded the Adviser will determine whether it is in the
best interest of the Portfolio to retain or dispose of the security.

Prices for below investment grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions gradually to reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.

Combined Transactions

The Portfolio may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward contracts) and any combination of futures,
options and foreign currency transactions ("component" transactions), instead of
a single transaction, as part of a single hedging strategy when, in the opinion
of the Adviser, it is in the best interest of the Portfolio to do so. A combined
transaction, while part of a single hedging strategy, may not offset fully the
risks of each component transaction and, therefore, may contain elements of risk
that are present in each of its component transactions. (See above for the risk
characteristics of certain transactions.)

Risks of Specialized Investment Techniques Abroad

The above described specialized investment techniques when conducted
abroad may not be regulated as effectively as in the United States; may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by: (i)
other complex foreign political, legal and economic factors; (ii) lesser
availability than in the United States of data on which to make trading
decisions; (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during on-business hours in the United States; (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States; and (v) lesser trading volume.

INVESTMENT RESTRICTIONS

(See "INVESTMENT RESTRICTIONS" in the Fund's
prospectus.)

Unless specified to the contrary, the following restrictions may not be
changed with respect to the Portfolio without the approval of the majority of
outstanding voting securities of the Portfolio (which, under the 1940 Act, as
amended, and the rules thereunder and as used in this Statement of Additional
Information, means the lesser of (1) 67% of the shares of the Portfolio present
at a meeting if the holders of more than 50% of the outstanding shares of the
Portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of the Portfolio). Any investment restrictions which involve
a maximum percentage of securities or assets shall not be considered to be
violated unless an excess over the percentage occurs immediately after, and is
caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by or on behalf of, the Portfolio.

In addition to the investment restrictions set forth in the Fund's
prospectus, the Portfolio may not:

13
<PAGE>
(1) purchase and sell real estate (though it may invest in
securities of companies which deal in real estate and in other
permitted investments secured by real estate) or commodities
or commodities contracts, except debt securities futures
contracts and securities index futures contracts and options
thereon;

(2) participate on a joint or a joint and several basis in any
trading account in securities, but may for the purpose of
possibly achieving better net results on portfolio
transactions or lower brokerage commission rates join with
other investment company and client accounts managed by
Scudder, Stevens & Clark or its affiliates in the purchase or
sale of portfolio securities;

(3) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Fund or a member, officer, director
or trustee of the investment adviser of the Fund if one or
more of such individuals owns beneficially more than one-half
of one percent (1/2 of 1%) of the shares or securities or both
(taken at market value) of such issuer and such individuals
owning more than one-half of one percent (1/2 of 1%) of such
shares or securities together own beneficially more than 5% of
such shares or securities or both;

(4) purchase securities on margin or make short sales unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions;

(5) issue senior securities, except as appropriate to evidence
indebtedness which a Portfolio is permitted to incur pursuant
to the Investment Restrictions set forth in the Fund's
prospectus and except for shares of various additional series
which may be established by the Trustees; or

(6) act as underwriter of the securities issued by others, except
to the extent that the purchase of securities in accordance
with its investment objective and policies directly from the
issuer thereof and the later disposition thereof may be deemed
to be underwriting.

"Value" for the purposes of all investment restrictions shall mean the
value used in determining the Portfolio's net asset value. (See "NET ASSET
VALUE").

PURCHASES AND REDEMPTIONS

(See "PURCHASES AND REDEMPTIONS" in the Fund's
prospectus.)

The separate accounts of the Participating Insurance Companies purchase
and redeem shares of the Portfolio based on, among other things, the amount of
premium payments to be invested and surrender and transfer requests to be
effected on that day pursuant to variable annuity contracts and variable life
insurance policies but only on days on which the New York Stock Exchange (the
"Exchange") is open for trading. Such purchases and redemptions of the shares of
the Portfolio are effected at its net asset value per share determined as of the
close of regular trading on the Exchange (normally 4 p.m. eastern time) on that
same day. (See "NET ASSET VALUE"). Payment for redemptions will be made by State
Street Bank and Trust Company on behalf of the Portfolio within seven days
thereafter. No fee is charged the separate accounts of the Participating
Insurance Companies when they redeem Fund shares.

The Fund may suspend the right of redemption of shares of the Portfolio
and may postpone payment for any period: (i) during which the Exchange is closed
other than customary weekend and holiday closings or during which trading on the
Exchange is restricted; (ii) when the SEC determines that a state of emergency
exists which may make payment or transfer not reasonably practicable, (iii) as
the SEC may by order permit for the protection of the security holders of the
Fund or (iv) at any other time when the Fund may, under applicable laws and
regulations, suspend payment on the redemption of its shares.

Should any conflict between VA contract and VLI policy holders arise
which would require that a substantial amount of net assets be withdrawn from
the Fund, orderly portfolio management could be disrupted to the potential
detriment of such contract and policy holders.

14
<PAGE>
INVESTMENT ADVISER AND DISTRIBUTOR

(See "INVESTMENT ADVISER" and "DISTRIBUTOR" in the
Fund's prospectus.)

Investment Adviser

The Fund has an investment advisory agreement for the Capital Growth
Portfolio (the "Agreement"). The Agreement is with the investment counsel firm
of Scudder, Stevens & Clark, Inc., a Delaware corporation, doing business under
the name Scudder, Stevens & Clark. This organization is one of the most
experienced investment counsel firms in the United States. It currently manages
in excess of $90 billion in assets for its clients, including: more than $50
billion in U.S. and foreign bonds, and over $9 billion in balanced portfolios
for over 3,000 institutional and private accounts. In addition, the assets of
Scudder's international investment company clients exceed $6 billion. Scudder,
Stevens & Clark, Inc. was established in 1919 and pioneered the practice of
providing investment counsel to individual clients on a fee basis. In 1928, it
introduced the first no-load mutual fund to the public. The Adviser has been a
leader in international investment management and trading for over 40 years.

The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Development Fund, Scudder Equity Trust, Scudder Fund, Inc., Scudder Funds Trust,
Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Scudder Investment
Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia
Fund, Inc., Scudder New Europe Fund, Inc., Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, Scudder World Income Opportunities Fund,
Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund,
Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The Latin America Dollar
Income Fund, Inc. Some of the foregoing companies or trusts have two or more
series.

The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets aggregating over $11 billion and
includes the AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust
and AARP Cash Investment Funds.

Certain investments may be appropriate for the Fund and for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of the most favorable net
results to the Fund.

The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.

15
<PAGE>
Under the Agreement, the Adviser regularly provides the Fund with
investment research, advice and supervision and furnishes continuously an
investment program consistent with the investment objective and policies of the
Portfolio, and determines, for the Portfolio, what securities shall be
purchased, what securities shall be held or sold, and what portion of the
Portfolio's assets shall be held uninvested, subject always to the provisions of
the Fund's Declaration of Trust and By-Laws, and of the 1940 Act and to the
Portfolio's investment objective, policies and restrictions, and subject further
to such policies and instructions as the Trustees may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Fund.

The Adviser pays the compensation and expenses of all affiliated
Trustees and executive employees of the Fund and makes available, without
expense to the Fund, the services of such affiliated persons as may duly be
elected Trustees of the Fund, subject to their individual consent to serve and
to any limitations imposed by law, and pays the Fund's office rent and provides
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. For its advisory
services the Adviser receives compensation monthly at an annual rate of .475% of
the average daily net asset value of the Portfolio. For the years ended December
31, 1992, 1993 and 1994 the dollar amount of such services amounted to $617,103,
$955,017 and $1,199,585, respectively.

Under the Agreement, the Fund is responsible for all its other
expenses, including clerical salaries; fees and expenses incurred in connection
with membership in investment company organizations; brokers' commissions;
legal, auditing and accounting expenses; taxes and governmental fees; the
charges of custodians, transfer agents and other agents; any other expenses,
including clerical expenses, of issue, sale, underwriting, distribution,
redemption or repurchase of shares; the expenses of and fees for registering or
qualifying securities for sale; the fees and expenses of the Trustees of the
Fund who are not affiliated with the Adviser; and the cost of preparing and
distributing reports and notices to shareholders. The Fund may arrange to have
third parties assume all or part of the expense of sale, underwriting and
distribution of its shares. (See "Distributor" for expenses paid by Scudder
Investor Services, Inc.) The Fund is also responsible for its expenses incurred
in connection with litigation, proceedings and claims and the legal obligation
it may have to indemnify its officers and Trustees with respect thereto.

In addition to payments for investment advisory services provided by
the Adviser, the Trustees, consistent with the Funds' investment advisory
agreement and underwriting agreement, have approved payments to the Adviser and
Scudder Investor Services, Inc. for clerical, accounting and certain other
services they may provide the Fund.

For the years ended December 31, 1992, 1993 and 1994 such compensation
amounted to $40,654, $59,589 and $45,272, respectively.

The Agreement dated November 14, 1986 will remain in effect until
September 30, 1995. The Agreement will continue in effect from year to year
thereafter only if its continuance is approved annually by the vote of a
majority of those Trustees who are not parties to such Agreement or "interested
persons" of the Adviser or the Fund cast in person at a meeting called for the
purpose of voting on such approval and either by vote of a majority of the
Trustees or a majority of the outstanding securities of the Portfolio. The
Agreement was last approved by such Trustees (including a majority of the
Trustees who are not such "interested persons") on August 12, 1994. The
Agreement may be terminated at any time without payment of penalty by either
party on sixty days' written notice, and automatically terminates in the event
of its assignment.

The Agreement also provides that the Fund may use any name derived from
the name "Scudder, Stevens & Clark" only as long as such Agreement remains in
effect.

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning the Agreement, Trustees who are not "interested persons" of
the Fund are represented by independent counsel at the Fund's expense.

The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting

16
<PAGE>
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.

Each Participating Insurance Company has agreed with the Adviser to
reimburse the Adviser for a period of five years to the extent that the
aggregate annual advisory fee paid on behalf of the Portfolio with respect to
the average daily net asset value of the shares of the Portfolio held in that
Participating Insurance Company's general or separate account (or those of
affiliates) is less than $25,000 in any year. It is expected that insurance
companies which become Participating Insurance Companies in the future will be
required to enter into similar arrangements.

For a period of five years from the date of execution of a
Participation Agreement with the Fund, the Participating Insurance Companies
have agreed to contribute to the capital of the Fund to the extent that the
annual operating expenses of the Portfolio exceed 0.75 of 1% of the Portfolio's
average daily net assets for any year of the Fund. The obligation of each
Participating Insurance Company in relation to the total capital contribution
due to the Portfolio is the proportion that the average value of the shares of
such Portfolio held during the year by a separate account or separate accounts
of such Company (or $1,000,000, if greater) bears to such average daily net
assets. The Adviser may advance some or all of such capital contribution to the
Fund prior to receiving payment therefor from a Participating Insurance Company,
but it is under no obligation to do so; if the Adviser does advance such capital
contribution to the Fund and does not receive payment therefor, it will be
entitled to be repaid such amounts by the Fund. It is expected that insurance
companies which become Participating Insurance Companies in the future will be
required to enter into similar arrangements. These arrangements may be modified
or terminated in the future. To date, Charter National Life Insurance Company,
Mutual of America Life Insurance Company and Banner Life Insurance Company have
been Participating Insurance Companies for the past eight, six and five years,
respectively, and have made arrangements with the Adviser to continue their
participation.

Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.

None of the Trustees or officers of the Fund may have dealings with the
Fund as principals in the purchase or sale of securities.

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Portfolio. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

Distributor

The Fund has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, Two
International Place, Boston, Massachusetts 02110-4103. The Fund's underwriting
agreement dated July 12, 1985, will remain in effect until September 30, 1995,
and from year to year thereafter only if its continuance is approved annually by
a majority of the Trustees who are not parties to such agreement or "interested
persons" of any such party and either by vote of a majority of the Trustees or a
majority of the outstanding voting securities of the Fund.

Under the principal underwriting agreement between the Fund and the
Distributor, the Fund is responsible for the payment of all fees and expenses in
connection with the preparation and filing of any registration statement and

17
<PAGE>
prospectus covering the issue and sale of shares, and the registration and
qualification of shares for sale with the SEC in the various states, including
registering the Fund as a broker or dealer. The Fund will also pay the fees and
expenses of preparing, printing and mailing prospectuses annually to existing
shareholders and any notice, proxy statement, report, prospectus or other
communication to shareholders of the Fund, printing and mailing confirmations of
purchases of shares, any issue taxes or any initial transfer taxes, a portion of
toll-free telephone service for shareholders, wiring funds for share purchases
and redemptions (unless paid by the shareholder who initiates the transaction),
printing and postage of business reply envelopes and a portion of the computer
terminals used by both the Fund and the Distributor.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the shares to
the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares to the public. The
Distributor will pay all fees and expenses in connection with its qualification
and registration as a broker or dealer under Federal and state laws, a portion
of the toll-free telephone service and of computer terminals, and of any
activity which is primarily intended to result in the sale of shares issued by
the Fund, unless a 12b-l Plan is in effect which provides that the Fund shall
bear some or all of such expenses. The Distributor has entered into agreements
with broker-dealers authorized to offer and sell VA contracts and VLI policies
on behalf of the Participating Insurance Companies under which agreements the
broker-dealers have agreed to be responsible for the fees and expenses of any
prospectus, statement of additional information and printed information
supplemental thereto of the Fund distributed in connection with their offer of
VA contracts and VLI policies.

As agent, the Distributor currently offers shares of the Portfolio on a
continuous basis to the separate accounts of Participating Insurance Companies
in all states in which the Portfolio or the Fund may from time to time be
registered or where permitted by applicable law. The underwriting agreement
provides that the Distributor accepts orders for shares at net asset value
without sales commission or load being charged. The Distributor has made no firm
commitment to acquire shares of the Portfolio.

Note: Although the Fund does not currently have a 12b-1 Plan and shareholder
approval would be required in order to adopt one, the underwriting
agreement provides that the Fund will also pay those fees and expenses
permitted to be paid or assumed by the Fund pursuant to a 12b-1 Plan,
if any, adopted by the Fund, notwithstanding any other provision to the
contrary in the underwriting agreement, and the Fund or a third party
will pay those fees and expenses not specifically allocated to the
Distributor in the underwriting agreement.

<TABLE>
<CAPTION>
MANAGEMENT OF THE FUND

Trustees and Officers

Position with
Underwriter,
Scudder Investor
Name and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
David B. Watts*@+ President and Trustee Managing Director Assistant Treasurer
of Scudder, Stevens
& Clark, Inc.

Dr. Kenneth Black, Jr. Trustee Regents' Professor ----
Educational Foundation, Inc. Emeritus of Insurance, Georgia
35 Broad Street State University
11th Floor, Room 1144
Atlanta, GA 30303

18
<PAGE>
Position with
Underwriter,
Scudder Investor
Name and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------- ------------------ ---------------------- --------------
Peter B. Freeman@ Trustee Corporate Director ----
100 Alumni Avenue and Trustee
Providence, RI 02906

Dr. J. D. Hammond Trustee Dean, Smeal College ----
801 Business of Business
Administration Bldg. Administration, Pennsylvania
Pennsylvania State University State University
University Park, PA 16802

Daniel Pierce*@+ Vice President and Chairman of the Vice President,
Trustee Board and Director and Assistant
Managing Director Treasurer
of Scudder, Stevens
& Clark, Inc.

Pamela A. McGrath+ Vice President and Principal of Scudder, Stevens & ----
Treasurer Clark, Inc.

Thomas S. Crain++ Vice President Managing Director ----
of Scudder, Stevens
& Clark, Inc.

Jerard K. Hartman# Vice President Managing Director ----
of Scudder, Stevens
& Clark, Inc.

Richard A. Holt*** Vice President Managing Director ----
of Scudder, Stevens
& Clark, Inc.

Thomas W. Joseph+ Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer
and Assistant Clerk

David S. Lee+ Vice President Managing Director President, Assistant
of Scudder, Stevens Treasurer and Director
& Clark, Inc.

Steven M. Meltzer+ Vice President Principal of Scudder, Stevens & ----
Clark, Inc.

Edward J. O'Connell# Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.

Randall K. Zeller# Vice President Managing Director ----
of Scudder, Stevens
& Clark, Inc.

19
<PAGE>
Position with
Underwriter,
Scudder Investor
Name and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------- ------------------ ---------------------- --------------
Thomas F. McDonough+ Secretary Principal of Scudder, Clerk
Stevens & Clark, Inc.

Kathryn L. Quirk# Vice President and Managing Director Vice President
Assistant Secretary of Scudder, Stevens
& Clark, Inc.

Coleen Downs Dinneen+ Assistant Secretary Vice President of Assistant Clerk
Scudder, Stevens &
Clark, Inc.
</TABLE>

* Messrs. Watts and Pierce are considered by the Fund and its
counsel to be Trustees who are "interested persons" of the
Adviser or of the Fund (within the meaning of the 1940 Act, as
amended).
** Unless otherwise stated, all the officers and Trustees have
been associated with their respective companies for more than
five years, but not necessarily in the same capacity.
@ Peter B. Freeman, Daniel Pierce and David B. Watts are members
of the Executive Committee, which has the power to declare
dividends from ordinary income and distributions of realized
capital gains to the same extent as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
02110-4103
# Address: 345 Park Avenue, New York, New York 10154
++ Address: 600 Vine Street - Suite 2000, Cincinnati, Ohio 45202
*** Address: 111 E. Wacker Drive - Suite 2200, Chicago, Illinois
60601

Certain of the Trustees and officers of the Fund also serve in similar
capacities with other Scudder Funds.

Remuneration

Several of the officers and Trustees of the Fund may also be officers
of the Adviser, the Distributor, Scudder Service Corporation, Scudder Trust
Company or Scudder Fund Accounting Corporation which receive fees paid by the
Fund. The Fund pays no direct remuneration to any officer of the Fund. However,
each of the Trustees who is not affiliated with the Adviser will be paid by the
Fund. Of these unaffiliated Trustees, Drs. Black and Hammond each receive an
annual Trustee's fee of $2,000 per Portfolio and a fee of $200 per Portfolio for
each Trustees' meeting attended or for each meeting held for the purpose of
considering arrangements between the Fund and the Adviser, while Mr. Freeman
receives fees of $1,250 per Portfolio and $125 per Portfolio, respectively. Drs.
Black and Hammond also receive $100 per Portfolio per committee meeting attended
(other than audit committee, for which each receives a fee of $200 per
Portfolio), while Mr. Freeman receives fees of $75 per Portfolio and $125 per
Portfolio, respectively. A total of $58,473 was paid for Trustees' fees and
expenses, including legal counsel to the Trustees, in the year ended December
31, 1994.

The following Compensation Table, provides in tabular form, the
following data.

Column (1) All Trustees who receive compensation from the Fund.
Column (2) Aggregate compensation received by a Trustee from all series of the
Fund - Scudder Variable Life Investment Fund, which is comprised of Money Market
Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio,
Capital Growth Portfolio and International Portfolio.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to be
paid by the Fund. Scudder Variable Life Investment Fund does not pay its
Trustees such benefits.

20
<PAGE>
Column (5) Total compensation received by a Trustee from Money Market Portfolio,
Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, Capital Growth
Portfolio and International Portfolio, plus compensation received from all funds
managed by the Adviser for which a Trustee serves. The total number of funds
from which a Trustee receives such compensation is also provided in column (5).

<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1994
=========================== ============================= =================== ================= ====================
(1) (2) (3) (4) (5)
Pension or
Retirement Total Compensation
Aggregate Compensation from Benefits Accrued Estimated From the Fund and
Name of Person, the Scudder Variable Life As Part of Fund Annual Benefits Fund Complex Paid
Position Investment Fund* Expenses Upon Retirement to Trustee
=========================== ============================= =================== ================= ====================
<S> <C> <C> <C> <C>
Dr. Kenneth Black, Jr., $ 14,400 N/A N/A $ 14,400
Trustee (6 funds)

Peter B. Freeman, Trustee $ 9,600 N/A N/A $ 141,843.83
(31 funds)

Dr. J.D. Hammond, $ 14,400 N/A N/A $ 14,400
Trustee (6 funds)

* Scudder Variable Life Investment Fund consists of six Portfolios: Money Market Portfolio, Bond Portfolio,
Balanced Portfolio, Growth and Income Portfolio, Capital Growth Portfolio and International Portfolio.
</TABLE>

NET ASSET VALUE

(See "NET ASSET VALUE" and "VALUATION OF PORTFOLIO SECURITIES"
in the Fund's prospectus)

The net asset value of shares of the Portfolio is computed as of the
close of regular trading on the Exchange on each day the Exchange is open for
trading (the "Value Time"). The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of a Fund, less
all liabilities, by the total number of shares outstanding.

An exchange-traded equity security (not subject to resale restrictions)
is valued at its most recent sale price as of the Value Time. Lacking any sales,
the security is valued at the calculated mean between the most recent bid
quotation and the most recent asked quotation (the "Calculated Mean"). If there
are no bid and asked quotations, the security is valued at the most recent bid
quotation. An unlisted equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at the most recent sale price. If there are no such sales, the security
is valued at the high or "inside" bid quotation. The value of an equity security
not quoted on the NASDAQ System, but traded in another over-the-counter market,
is the most recent sale price. If there are no such sales, the security is
valued at the Calculated Mean. If there is no Calculated Mean, the security is
valued at the most recent bid quotation.

Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation

21
<PAGE>
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If no such bid quotation is available, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.

Option contracts on securities, currencies, futures and other financial
instruments traded on an exchange are valued at their most recent sale price on
the exchange. If no sales are reported, the value is the Calculated Mean, or if
the Calculated Mean is not available, the most recent bid quotation in the case
of purchased options, or the most recent asked quotation in the case of written
options. Option contracts traded over-the-counter are valued at the most recent
bid quotation in the case of purchased options and at the most recent asked
quotation in the case of written options. Futures contracts are valued at the
most recent settlement price. Foreign currency forward contracts are valued at
the value of the underlying currency at the prevailing currency exchange rate.

If a security is traded on more than one exchange, or on one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

If, in the opinion of the Fund's Valuation Committee, the value of an
asset as determined in accordance with these procedures does not represent the
fair market value of the asset, the value of the asset is taken to be an amount
which, in the opinion of the Valuation Committee, represents fair market value
on the basis of all available information. The value of other portfolio holdings
owned by the Fund is determined in a manner which, in the discretion of the
Valuation Committee most fairly reflects fair market value of the property on
the valuation date.

Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rates on the valuation date.

TAX STATUS

(See "TAX STATUS, DIVIDENDS AND DISTRIBUTIONS" in the
Fund's prospectus.)

The Portfolio has elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification does not involve governmental supervision or
management of investment practices or policy.

The Portfolio intends to comply with the provisions of Section 817(h)
of the Code relating to diversification requirements for variable annuity,
endowment and life insurance contracts. Specifically, the Portfolio intends to
comply with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for Diversification"
specified in Section 817(h)(2) of the Code, or (iii) the diversification
requirement of Section 817(h)(1) of the Code by having all or part of its assets
invested in U.S. Treasury securities which qualify for the "Special Rule for
Investments in United States Obligations" specified in Section 817(h)(3) of the
Code.

A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income and generally is not subject to federal income
tax to the extent that it distributes annually its investment company taxable
income and net realized capital gains in the manner required under the Code.

The Portfolio will be subject to a 4% nondeductible excise tax on
amounts required to be but not distributed under a prescribed formula. The
formula requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Portfolio's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 of such year, and all ordinary income and capital gains for
previous years that were not previously distributed. Investment companies with
taxable years ending on November 30 or December 31 may make an irrevocable
election to measure the required capital gain distribution using their actual
taxable year, and the Portfolio will consider making such an election. This 4%
excise tax will not apply to the Portfolio for any calendar year if throughout
such calendar year each shareholder of the Portfolio was a segregated asset
account of a life insurance company held in connection with variable life
insurance or annuity contracts (disregarding, for this purpose, shares of the

22
<PAGE>
Portfolio which are attributable to investments of up to $250,000 made in
connection with the organization of the Portfolio).

Investment company taxable income of the Portfolio generally is made up
of dividends, interest, certain currency gains and losses and net-short-term
capital gains in excess of net long-term capital losses, less expenses. Net
realized capital gains of the Portfolio for a fiscal year are computed by taking
into account any capital loss carryforward of the Portfolio.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Portfolio for reinvestment,
requiring federal income taxes to be paid thereon by the Portfolio, such
Portfolio intends to elect to treat such capital gains as having been
distributed to shareholders. As a result, the shareholder will report such
capital gains as long-term capital gains, will be able to claim its share of
federal income taxes paid by the Portfolio on such gains as a credit against its
own federal income tax liability, and will be entitled to increase the adjusted
tax basis of its shares of the Portfolio by the difference between its pro rata
share of such gains and its tax credit.

Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Portfolio have been held by
such shareholders. Any loss realized upon the redemption of shares held at the
time of redemption for six months or less will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gain during such six-month period.

Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether reinvested in
additional shares or in cash. Shareholders electing to receive distributions in
the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share on
the reinvestment date.

All distributions of investment company taxable income and net realized
capital gain, whether reinvested in additional shares or in cash, must be
reported by each shareholder on its federal income tax return. Dividends
declared in October, November or December with a record date in such a month
will be deemed to have been received by shareholders on December 31 if paid
during January of the following year. Redemptions of shares may result in tax
consequences (gain or loss) to the shareholder and are also subject to these
reporting requirements.

Distributions by the Portfolio result in a reduction in the net asset
value of the Portfolio's shares. Should a distribution reduce the net asset
value below a shareholder's cost basis, such distribution would nevertheless be
taxable to the shareholder as ordinary income or capital gain as described
above, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should consider the tax implications
of buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of capital upon
the distribution, which will nevertheless be taxable to them.

If the Portfolio invests in stock of certain foreign investment
companies, the Portfolio may be subject to U.S. federal income taxation on a
portion of any "excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be determined by allocating such
distribution or gain ratably to each day of the Portfolio's holding period for
the stock. The distribution or gain so allocated to any taxable year of the
Portfolio, other than the taxable year of the excess distribution or
disposition, would be taxed to the Portfolio at the highest ordinary income rate
in effect for such year, and the tax would be further increased by an interest
charge to reflect the value of the tax deferral deemed to have resulted from the
ownership of the foreign company's stock. Any amount of distribution or gain
allocated to the taxable year of the distribution or disposition would be
included in the Portfolio's investment company taxable income and, accordingly,
would not be taxable to the Portfolio to the extent distributed by the Portfolio
as a dividend to its shareholders.

Proposed regulations have been issued which may allow the Portfolio to
make an election to mark to market its shares of these foreign investment
companies in lieu of being subject to U.S. federal income taxation. At the end

23
<PAGE>
of each taxable year to which the election applies, the Portfolio would report
as ordinary income the amount by which the fair market value of the foreign
company's stock exceeds the Portfolio's adjusted basis in these shares. No mark
to market losses would be recognized. The effect of the election would be to
treat excess distributions and gain on dispositions as ordinary income which is
not subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Portfolio may elect to include as income and gain its share
of the ordinary earnings and net capital gain of certain foreign investment
companies in lieu of being taxed in the manner described above.

Equity options (including options on stock and options on narrow-based
stock indexes) and over-the-counter options on debt securities written or
purchased by the Portfolio will be subject to tax under Section 1234 of the
Code. In general, no loss is recognized by the Portfolio upon payment of a
premium in connection with the purchase of a put or call option. The character
of any gain or loss recognized (i.e., long-term or short-term) will generally
depend in the case of a lapse or sale of the option on the Portfolio's holding
period for the option and in the case of an exercise of a put option on the
Portfolio's holding period for the underlying security. The purchase of a put
option may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or a substantially
identical security of the Portfolio. If the Portfolio writes a put or call
option, no gain is recognized upon its receipt of a premium. If the option
lapses or is closed out, any gain or loss is treated as a short-term capital
gain or loss. If a call option written by the Portfolio is exercised, the
character of the gain or loss depends on the holding period of the underlying
security. The exercise of a put option written by the Portfolio is not a taxable
transaction for the Portfolio.

Many futures contracts entered into by the Portfolio and all listed
nonequity options written or purchased by the Portfolio (including options on
debt securities, options on futures contracts, options on securities indexes and
options on broad-based stock indexes) will be governed by Section 1256 of the
Code. Absent a tax election to the contrary, gain or loss attributable to the
lapse, exercise or closing out of any such position generally will be treated as
60% long-term and 40% short-term capital gain or loss, and on the last trading
day of the fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e. treated as if such positions were closed out at their closing price
on such day), with any resulting gain or loss recognized as 60% long-term and
40% short-term capital gain or loss. Under Section 988 of the Code, discussed
below, foreign currency gain or loss from foreign currency-related forward
contracts, certain futures and options and similar financial instruments entered
into or acquired by the Portfolio will be treated as ordinary income. Under
certain circumstances, entry into a futures contract to sell a security may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or a substantially identical
security owned by the Portfolio.

Subchapter M of the Code requires that the Portfolio realize less than
30% of its annual gross income from the sale or other disposition of stock,
securities and certain options, futures and forward contracts held for less than
three months. Certain options, futures and forward activities of the Portfolio
may increase the amount of gains realized by the Portfolio that are subject to
the 30% limitation. Accordingly, the amount of such transactions that the
Portfolio may undertake may be limited.

Positions of the Portfolio which consist of at least one stock and at
least one stock option or other position with respect to a related security
which substantially diminishes the Portfolio's risk of loss with respect to such
stock could be treated as a "straddle" which is governed by Section 1092 of the
Code, the operation of which may cause deferral of losses, adjustments in the
holding periods of stock or securities and conversion of short-term capital
losses into long-term capital losses. An exception to these straddle rules
exists for any "qualified covered call options" on stock written by the
Portfolio.

Positions of the Portfolio which consist of at least one position not
governed by Section 1256 and at least one futures contract, foreign currency
forward contract or nonequity option governed by Section 1256 which
substantially diminishes the Portfolio's risk of loss with respect to such other
position will be treated as a "mixed straddle." Although mixed straddles are
subject to the straddle rules of Section 1092 of the Code, certain tax elections
exist for them which reduce or eliminate the operation of these rules. The
Portfolio will monitor its transactions in options and futures and may make
certain tax elections in connection with these investments.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Portfolio accrues receivables or
liabilities denominated in a foreign currency and the time the Portfolio

24
<PAGE>
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures contracts, forward contracts and options, gains or losses attributable
to fluctuations in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of the
Portfolio's investment company taxable income to be distributed to its
shareholders as ordinary income.

If a Portfolio holds zero coupon securities or other securities which
are issued at a discount, a portion of the difference between the issue price of
zero coupon securities and the face value ("original issue discount") will be
treated as income to the Portfolio each year, even though the Portfolio will not
receive cash interest payments from these securities. This original issue
discount (imputed income) will comprise a part of the investment company taxable
income of the Portfolio which must be distributed to shareholders in order to
maintain the qualification of the Portfolio as a regulated investment company
and to avoid federal income tax at the Portfolio level. Shareholders will be
subject to income tax on such original issue discount, whether or not they elect
to receive their distributions in cash. If a Portfolio acquires a debt
instrument at a market discount, a portion of the gain recognized, if any, on
disposition of such instrument may be treated as ordinary income.

Dividend and interest income received by the Portfolio from sources
outside the U.S. may be subject to withholding and other taxes imposed by such
foreign jurisdictions. Tax conventions between certain countries and the U.S.
may reduce or eliminate these foreign taxes, however, and foreign countries
generally do not impose taxes on capital gains respecting investments by foreign
investors.

The Portfolio will be required to report to the Internal Revenue
Service all distributions of investment company taxable income and capital gains
as well as gross proceeds from the redemption or exchange of shares, except in
the case of certain exempt shareholders, which include most corporations. Under
the backup withholding provisions of Section 3406 of the Code, distributions of
taxable income and capital gains and proceeds from the redemption or exchange of
the shares of a regulated investment company may be subject to withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to furnish the investment company with their taxpayer identification
numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if the Portfolio is
notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. Participating Insurance Companies
that are corporations should furnish their taxpayer identification numbers and
certify their status as corporations in order to avoid possible erroneous
application of backup withholding.

Shareholders of the Portfolio may be subject to state and local taxes
on distributions received from such Portfolio and on redemptions of their
shares.

Each distribution is accompanied by a brief explanation of the form and
character of the distribution.

The Fund is organized as a Massachusetts business trust, and neither
the Fund nor the Portfolio is liable for any income or franchise tax in the
Commonwealth of Massachusetts providing the Portfolio continues to qualify as a
regulated investment company under Subchapter M of the Code.

The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons. Each shareholder which is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Portfolio, including the possibility that such a shareholder
may be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income
received by it, where such amounts are treated as income from U.S. sources under
the Code.

For further information concerning federal income tax consequences for
the holders of the VA contracts and VLI policies, shareholders should consult
the prospectus used in connection with the issuance of their particular
contracts or policies. Shareholders should consult their tax advisers about the
application of the provisions of tax law described in this statement of
additional information in light of their particular tax situations.

25
<PAGE>
DIVIDENDS AND DISTRIBUTIONS

(See "TAX STATUS, DIVIDENDS AND DISTRIBUTIONS" in the
Fund's prospectus.)

The Portfolio has followed the practice of declaring and distributing a
dividend of investment company taxable income, if any, quarterly, in January,
April, July and October. The Portfolio has distributed its net capital gain
within three months of the end of the fiscal year. Both dividends and capital
gain distributions will be reinvested in additional shares of the Portfolio
unless an election is made on behalf of a separate account to receive dividends
and capital gain distributions in cash.

PERFORMANCE INFORMATION

(See "Performance Information" in the Fund's prospectus)

From time to time, quotations of the Portfolio's performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures may be calculated in the
following manner:

A. Average Annual Total Return is the average annual compound
rate of return for the periods of one year and five years (or
such shorter periods as may be applicable dating from the
commencement of the Portfolio's operations) all ended on the
date of a recent calendar quarter.

Average annual total return quotations reflect changes in the
price of the Portfolio's shares and assume that all dividends
and capital gains distributions during the respective periods
were reinvested in Portfolio shares. Average annual total
return is calculated by finding the average annual compound
rates of return of a hypothetical investment over such
periods, according to the following formula (average annual
total return is then expressed as a percentage):

T = (ERV/P)^(1/n) - 1
Where:

P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV
is the value, at the end of
the applicable period, of a
hypothetical $1,000 investment
made at the beginning of the
applicable period.

Average Annual Total Return for periods ended December 31, 1994

One Year Five Years Life of Fund
-------- ---------- ------------
-9.67% 8.46% 12.22% (1)

(1) For the period beginning July 16, 1985 (commencement of operations)

B. Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified
period. Cumulative total return quotations reflect changes in
the price of a Fund's shares and assume that all dividends and
capital gains distributions during the period were reinvested
in Fund shares. Cumulative total return is calculated by
finding the cumulative rates of return of a hypothetical
investment over such periods, according to the following
formula (cumulative total return is then expressed as a
percentage):

C = (ERV/P) - 1

26
<PAGE>
Where:

C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a
hypothetical $1,000 investment
made at the beginning of the
applicable period.

Cumulative Total Return for periods ended December 31, 1994

One Year Five Years Life of Fund
-------- ---------- ------------
-9.67% 50.08% 197.83% (1)

(1) For the period beginning July 16, 1985 (commencement of operations)

As described above, average annual total return, cumulative total
return and yield are based on historical earnings and are not intended to
indicate future performance. Average annual total return, cumulative total
return and yield for the Portfolio will vary based on changes in market
conditions and the level of the Portfolio's expenses.

In connection with communicating its total return or yield to current
or prospective shareholders, the Fund also may compare these figures for the
Portfolio to the performance of other mutual funds tracked by mutual fund rating
services or to other unmanaged indexes which may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.

Comparison of Portfolio Performance

From time to time, in marketing and other fund literature, the
performance of the Portfolio may be compared to the performance of broad groups
of mutual funds which are used in conjunction with variable annuities and have
with similar investment goals, as tracked by independent organizations. Among
these organizations, Lipper Analytical Services, Inc., Morningstar, Inc., and
the Variable Annuity Research and Data Service (V.A.R.D.S.(R)) may be cited.
When independent tracking results are used, the Portfolio will be compared to
Lipper's appropriate fund category, that is, by investment objective and
portfolio holdings. For instance, growth portfolios will be compared to funds
within Lipper's growth fund category. Rankings may be listed among one or more
of the asset-size classes as determined by Lipper.

Lipper, Morningstar and V.A.R.D.S.(R) track and rank the performance of
variable annuities in each of the major investment categories. Performance
comparisons and rankings by Lipper, Morningstar and V.A.R.D.S.(R) are based on
total return and assume reinvestment of income and capital gains, but do not
take into account sales charges, redemption fees or certain other expenses
charged at the separate account level.

Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.

Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Portfolio with performance quoted with respect to other
investment companies or types of investments.

From time to time, in marketing and other Fund literature, the
Portfolio's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of performance made by independent sources may also be used in
advertisements concerning the Portfolio, including reprints of, or selections
from, editorials or articles about the Portfolio.

27
<PAGE>
The Capital Growth Portfolio may invest in foreign securities. The
following graph illustrates the historical risks and returns of selected indices
which track the performance of various combinations of United States and
international securities for the ten year period ended December 31, 1994;
results for other periods may vary. The graph uses ten year annualized
international returns represented by the Morgan Stanley Capital International
Europe, Australia and Far East (EAFE) Index and ten year annualized United
States returns represented by the S&P 500 Index. Risk is measured by the
standard deviation in overall portfolio performance within each index.
Performance of an index is historical, and does not represent the performance of
a Fund, and is not a guarantee of future results.

LINE CHART - EFFICIENT FRONTIER
MSCI EAFE vs. S&P 500 (12/31/84-12/31/94)

CHART DATA:

Total Standard
Return Deviation
------ ---------
17.95 18.46 100% Int'l MSCI EAFE
17.14 18.05 10 US/90 Int'l
16.41 17.64 20/80
15.8 17.23 30 U.S./70 Int'l
15.3 16.82 40/60
14.93 16.41 50 U.S./50Int'l
14.7 16 60/40
14.62 15.59 70 U.S./30 Int'l
14.69 15.18 80/20
14.91 14.77 90 U.S./10 Int'l
15.27 14.36 100% U.S. S&P 500

MSCI EAFE vs. S&P 500 (12/31/84 - 12/31/94)

18.46 17.95
18.05 17.14
17.64 16.41
17.23 15.8
16.82 15.3
16.41 14.93
16 14.7
15.59 14.62
15.18 14.69
14.77 14.91
14.36 15.27

Source: Lipper Analytical Services, Inc. (Data as of 12/31/94)

Evaluation of Fund performance and other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund may include the following:

American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

28
<PAGE>
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."

Ibbotson Associates, Inc., a company specializing in investment research and
data.

Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.

Investor's Daily, a daily newspaper that features financial, economic, and
business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

Morningstar, Inc., a company that, among other activities, analyzes, ranks and
rates mutual funds and variable annuities.

Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.

Mutual Funds, a monthly magazine devoted to mutual fund investing.

29
<PAGE>
The New York Times, a nationally distributed newspaper which regularly covers
financial news.

The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.

USA Today, a leading national daily newspaper.

U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.

Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.

Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.

Your Money, a bimonthly magazine featuring articles about personal investing and
money management.

SHAREHOLDER COMMUNICATIONS

Owners of policies and contracts issued by Participating Insurance
Companies for which shares of one or more Portfolios are the investment vehicle
will receive from the Participating Insurance Companies unaudited semi-annual
financial statements and audited year-end financial statements certified by the
Fund's independent public accountants. Each report will show the investments
owned by the Fund and the market values thereof as determined by the Trustees
and will provide other information about the Fund and its operations.

Participating Insurance Companies with inquiries regarding the Fund may
call the Fund's underwriter, Scudder Investor Services, Inc., at 617-295-1000 or
write Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103.

30
<PAGE>
ORGANIZATION AND CAPITALIZATION

(See "ADDITIONAL INFORMATION -- Shareholder
Indemnification" in the Fund's prospectus.)

General

The Fund is an open-end investment company established under the laws
of The Commonwealth of Massachusetts by Declaration of Trust dated March 15,
1985.

As of December 31, 1994, AEtna Life Insurance and Annuity Company (151
Farmington Avenue PPH3, Hartford, CT 06156), owned of record and beneficially
40.36% of the International Portfolio; they owned of record and beneficially
9.58% of the Fund's total outstanding shares; and American Skandia Life
Assurance Corporation (1 Corporation Drive, Shelton, CT 06484), owned of record
and beneficially 37.69% of the Bond Portfolio, 0.05% of the Capital Growth
Portfolio, 0.14% of the Balanced Portfolio and 0.28% of the International
Portfolio; they owned of record and beneficially 4.53% of the Fund's total
outstanding shares; and AUSA Life Insurance Company (4 Manhattanville Road,
Purchase, NY 10577) owned of record and beneficially 0.33% of the International
Portfolio; they owned of record and beneficially 0.08% of the Fund's total
outstanding shares; and Banner Life Insurance Company of Rockville, MD (1701
Research Blvd., Rockville, MD 20850) owned of record and beneficially 0.16% of
the Money Market Portfolio, 0.35% of the Bond Portfolio, 6.84% of the Balanced
Portfolio, 0.44% of the International Portfolio, 0.01% of the Growth and Income
Portfolio and 1.09% of the Capital Growth Portfolio; they owned of record and
beneficially 0.53% of the Fund's total outstanding shares; and Charter National
Life Insurance Company (8301 Maryland Avenue, St. Louis, MO 63105, a Missouri
corporation) and its subsidiary, Intramerica Life Insurance Company (1 Blue
Hills Plaza, Pearl River, NY 10965), owned of record and beneficially 71.43% of
the Money Market Portfolio, 12.96% of the Bond Portfolio, 86.16% of the Balanced
Portfolio, 29.73% of the Capital Growth Portfolio, 99.97% of the Growth and
Income Portfolio and 21.59% of the International Portfolio; they owned of record
and beneficially 48.88% of the Fund's total outstanding shares. In 1991, Charter
National Life Insurance Company purchased the Colonial Penn Group, Inc., which
indirectly owns Intramerica, a New York domestic life insurer. On November 1,
1992, First Charter Life Insurance Company ("First Charter"), a subsidiary of
Charter National Life Insurance Company, was merged with and into Intramerica.
As the company surviving the merger, Intramerica acquired legal ownership of all
of First Charter's assets, including the Variable Account, and became
responsible for all of First Charter's liabilities and obligations. As a result
of the merger, all Contracts issued by First Charter before the merger became
Contracts issued by Intramerica after the merger. Fortis Benefits Insurance
Company (Norwest Bank, Sixth and Marquette-MS0063, Minneapolis, MN 55479) owned
of record and beneficially 0.21% of the International Portfolio; they owned of
record and beneficially 0.05% of the Fund's total outstanding shares; and
Lincoln Benefit Life Insurance Company (134 South 13th Street, Lincoln, NE
68508) owned of record and beneficially 0.06% of the Bond Portfolio and 1.16% of
the Balanced Portfolio; they owned of record and beneficially 0.04% of the
Fund's total outstanding shares; and Mutual of America Life Insurance Company of
New York (666 5th Avenue, New York, NY 10103, a New York corporation) and its
subsidiary, American Life Insurance Company (666 5th Avenue, New York, NY
10103), owned of record and beneficially 47.43% of the Bond Portfolio, 65.04% of
the Capital Growth Portfolio and 29.55% of the International Portfolio; they
owned of record and beneficially 19.96% of the Fund's total outstanding shares;
and Paragon Life Insurance Company (100 South Brentwood, St. Louis, MO 63105)
owned of record and beneficially 0.01% of the Money Market Portfolio, 0.02% of
the Bond Portfolio, 0.07% of the Capital Growth Portfolio, 0.21% of the Balanced
Portfolio, 0.03% of the International Portfolio and 0.02% of the Growth and
Income Portfolio; they owned of record and beneficially 0.03% of the Fund's
total outstanding shares; and Providentmutual Life and Annuity Company of
America, (300 Continental Drive, Newark, DE 19713) owned of record and
beneficially 1.49% of the Bond Portfolio; they owned of record and beneficially
0.18% of the Fund's total outstanding shares; and Safeco Life Insurance
Companies (15411 N.E. 51st Street, Redmond, WA 98052), owned of record and
beneficially 5.49% of the Balanced Portfolio and 1.69% of the International
Portfolio; they owned of record and beneficially 0.55% of the Fund's total
outstanding shares; and The Union Central Life Insurance Company (1876 Waycross
Road, Cincinnati, OH 45240) owned of record and beneficially 28.25% of the Money
Market Portfolio, 4.02% of the Capital Growth Portfolio and 5.52% of the
International Portfolio; they owned of record and beneficially 15.52% of the
Fund's total outstanding shares; and United of Omaha Life Insurance Company
(Mutual of Omaha Plaza, Law Division, 3301 Dodge Street, Omaha, NE 68131) owned
of record and beneficially 0.15% of the Money Market Portfolio; they owned of
record and beneficially 0.07% of the Fund's total outstanding shares.

31
<PAGE>
Shares entitle their holders to one vote per share; however, separate
votes will be taken by the Portfolio on matters affecting such Portfolio. For
example, a change in investment policy for the Capital Growth Portfolio would be
voted upon only by shareholders of the Capital Growth Portfolio. Additionally,
approval of the investment advisory agreement covering the Portfolio is a matter
to be determined separately by such Portfolio. Approval by the shareholders of
one Portfolio is effective as to that Portfolio. Shares have noncumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can elect all Trustees and, in such event, the
holders of the remaining shares voting for the election of Trustees will not be
able to elect any person or persons as Trustees. Shares have no preemptive or
subscription rights, and are transferable.

Shareholders have certain rights, as set forth in the Declaration of
Trust of the Fund, including the right to call a meeting of shareholders for the
purpose of voting on the removal of one or more Trustees. Such removal can be
effected upon the action of two-thirds of the outstanding shares of beneficial
interest of the Fund.

Shareholder and Trustee Liability

The Fund is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. Notice
of such disclaimer will normally be given in each agreement, obligation, or
instrument entered into or executed by the Fund or the Trustees. The Declaration
of Trust provides for indemnification out of the Fund property of any
shareholder held personally liable for the obligations of the Fund. The
Declaration of Trust also provides that the Fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Trustees believe that, in view of the above, the risk of personal liability
of shareholders is remote.

The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

ALLOCATION OF PORTFOLIO BROKERAGE

To the maximum extent feasible, the Adviser places orders for portfolio
transactions through its affiliate, the Distributor, which in turn places orders
on behalf of the Fund with the issuer, underwriters or other brokers and
dealers. The Distributor will receive no commissions, fees or other remuneration
for this service. Allocation of brokerage is supervised by the Adviser.

The Fund's purchases and sales of debt securities acquired for the
Portfolio, are generally placed by the Adviser with primary market makers for
these securities on a net basis, without any brokerage commission being paid by
the Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter. Transactions in equity securities
generally involve the payment of a brokerage commission.

The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Portfolio is to obtain the most favorable net
results taking into account such factors as price, commission (negotiable in the
case of U.S. stock exchange transactions but which is generally fixed in the
case of foreign exchange transactions), if any, size of order, difficulty of
execution and skill required of the executing broker/dealer. Subject to the
foregoing, the Adviser may consider sales of variable life insurance policies
and variable annuity contracts for which the Fund is an investment option as a
factor in the selection of firms to execute portfolio transactions. The Adviser
seeks to evaluate the overall reasonableness of brokerage commissions paid
through the familiarity of the Distributor with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to

32
<PAGE>
reported commissions paid by others. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Fund
for valuation purposes, or who supply research, market and statistical
information to the Adviser. The term "research, market and statistical
information" includes advice as to the value of securities, the advisability of
investing in, purchasing or selling securities; and the availability of
securities or purchasers or sellers of securities; and furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for effecting the same transaction solely on account of the
receipt of research, market or statistical information. Subject to the
foregoing, the Adviser may consider sales of variable life insurance policies
and variable annuity contracts for which the Fund is an investment option, as a
factor in the selection of firms to execute portfolio transactions. Except for
implementing the policy stated above, there is no intention to place portfolio
transactions with any particular brokers or dealers or groups thereof. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market-makers for the securities being traded unless, in the
opinion of the Adviser, after exercising care, it appears that more favorable
results are available otherwise.

Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions with Bear, Stearns & Co. A credit against the
custodian fee due to State Street Bank and Trust Company equal to one-half of
the commission on any such transaction will be given with respect to the
Portfolio on any such transaction. During the fiscal year ended December 31,
1993, no such credit was applied against the custodian fee.

Although certain research, market and statistical information from
brokers and dealers is useful to the Fund and the Adviser, it is the opinion of
the Adviser that such information is only supplementary to the Adviser's own
research effort, since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund and not all such
information is used by the Adviser in connection with the Fund. Conversely, such
information provided to the Adviser by brokers and dealers through whom other
clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.

In the years ended December 31, 1992, 1993 and 1994, the Fund paid
brokerage commissions of $468,796, $1,084,463 and $2,006,264, respectively. In
the year ended December 31, 1994, the Portfolio paid brokerage commissions of
$420,391. In the year ended December 31, 1994, $388,483 (92.41%) of the total
brokerage commissions paid by the Portfolio resulted from orders placed,
consistent with the policy of obtaining the most favorable net results, with
brokers and dealers who provided supplementary research information to the
Portfolio or the Adviser. The amount of such transactions aggregated
$208,703,545 for the Portfolio (93.13% of all brokerage transactions). The
balance of such brokerage was not allocated to any particular broker or dealer
with regard to the above-mentioned or other special factors.

The Trustees will periodically review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
No recapture arrangements are currently in effect.

PORTFOLIO TURNOVER

The average annual portfolio turnover rate for the Portfolio, i.e. the
ratio of the lesser of annual sales or purchases to the monthly average value of
the portfolio (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less), for the years
ended December 31, 1993 and 1994, were 95.31% and 66.44%, respectively.

Purchases and sales are made for the Portfolio whenever necessary, in
management's opinion, to meet the Portfolio's objective.

33
<PAGE>
EXPERTS

The Financial Highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been audited by Coopers & Lybrand L.L.P., One Post Office
Square, Boston, Massachusetts 02109, independent accountants, and have been so
included or incorporated by reference in reliance upon the accompanying report
of said firm, which report is given upon their authority as experts in
accounting and auditing.

COUNSEL

The firm of Dechert Price & Rhoads, Ten Post Office Square, Suite 1230,
Boston, Massachusetts 02109, is counsel for the Fund.

ADDITIONAL INFORMATION

The activities of the Fund are supervised by its Trustees, who are
elected by shareholders. Shareholders have one vote for each share held.
Fractional shares have fractional votes.

Portfolio securities of the Fund are held separately, pursuant to a
custodian agreement, by State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, as custodian.

Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a wholly-owned subsidiary of the Adviser,
computes net asset value for the Portfolios. The Capital Growth Portfolio pays
SFAC an annual fee equal to 0.025% of the first $150 million of average daily
net assets, 0.0075% of such assets in excess of $150 million and 0.0045% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service.

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts,
02107-2291, is the transfer and dividend paying agent for the Fund.

The Fund has a December 31 fiscal year end.

The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended from time to time, and all persons dealing with the Fund must
look solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. Upon the initial purchase of shares, the shareholder agrees to be bound by
the Fund's Declaration of Trust, as amended from time to time. The Declaration
of Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts.

The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement, and its amendments, for further information with
respect to the Fund and the securities offered hereby. The Registration
Statement, and its amendments, are available for inspection by the public at the
SEC in Washington, D.C.

FINANCIAL STATEMENTS

The financial statements, including the investment portfolio of the
Portfolio, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements are incorporated by reference and
attached hereto in the Annual Report to the Shareholders of the Fund dated
December 31, 1994, and are hereby deemed to be a part of this Statement of
Additional Information.

34
<PAGE>
APPENDIX

Description of Bond Ratings

Moody's Investors Service, Inc.

Aaa: Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A: Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa: Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba: Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B: Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Standard & Poor's Corporation

AAA: Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay principal and interest.

AA: Bonds rated AA also qualify as high-quality obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.

A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

Bonds rated BB and B are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
<PAGE>
BB: Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

B: Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.

Description of Commercial Paper Ratings

Moody's Investors Service, Inc.

P-1: Moody's Commercial Paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations which have an
original maturity not exceeding one year. The designation "Prime-1" or
"P-1" indicates the highest quality repayment capacity of the rated
issue.

Standard & Poor's Corporation

A-1: Standard & Poor's Commercial Paper ratings are current assessments
of the likelihood of timely payment of debts considered short-term in
the relevant market. The A-1 designation indicates the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign designation.

<PAGE>
Scudder Variable Life Investment Fund

Annual Report

December 31, 1994

An open-end management investment company that offers
shares of beneficial interest in six types of diversified portfolios,
one of which is included herein.

<PAGE>
CONTENTS

Letter from the Fund's President .......................................... 2
Capital Growth Portfolio Management Discussion ............................ 3
Capital Growth Portfolio Summary .......................................... 4
Investment Portfolios, Financial Statements, and Financial Highlights
Capital Growth Portfolio ............................................. 5
Notes to Financial Statements ............................................. 15
Report of Independent Accountants ......................................... 18
Tax Information ........................................................... 18
<PAGE>

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

The world's financial markets were shaken repeatedly in 1994 by a
variety of events. Rising global interest rates, losses for investors in
highly leveraged derivatives, and some unsettling economic and political
developments -- including mounting U.S./Chinese tensions and the Mexican
currency crisis -- created a challenging environment for global stock and
bond investors.

We face 1995 with more optimism. In the coming year, we expect a
combination of factors, including the U.S. Federal Reserve's tightening
efforts, to keep the economy and inflation on a moderate course, not only
in the United States but globally as well. Meanwhile, corporate profits
around the world continue to grow, and business investment is at an
all-time high, which should translate into greater economic capacity down
the road. We believe these developments ultimately will be viewed as
positive by the financial markets.

For bond investors, the rise in interest rates in the past year has
meant generally falling prices but also higher income from these
investments at a time when inflation has remained relatively stable.
Although we believe the bulk of interest-rate increases is now behind us,
interest rates and investment income could rise somewhat further in 1995,
as central banks continue in their efforts to stem inflation and as
countries around the world compete for much-needed global investment
capital.

Additional increases in interest rates may spark episodes of difficult
adjustment for financial markets. We encourage you to examine your
portfolio periodically to ensure that your asset allocation and fund
choices remain appropriate for your investment time frame and financial
goals. The past year demonstrated that virtually all investments, whether
conservative or aggressive, can perform poorly, prompting many investors to
move to the sidelines. Conservative investments such as money market
instruments naturally have a place in any well-balanced portfolio.
Experience has shown us that investors who have participated in the stock
and bond markets historically have accumulated far more wealth over time
than those who chose to protect their savings above all else.

Thank you for choosing Scudder Variable Life Investment Fund to help
meet your investment needs. We hope we can continue to merit your
confidence in the year ahead.

Sincerely,

/s/David B. Watts
David B. Watts
President,
Scudder Variable Life Investment Fund

2
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

Two major trends influenced the stock market during much of 1994:
strong economic activity and persistently rising interest rates, due in
part to monetary tightening by the Federal Reserve. The struggle between
these opposing forces caused considerable unease among investors, and stock
prices were volatile throughout the year. In this environment, Capital
Growth Portfolio's net asset value per share declined to $12.23 on December
31, 1994, from $14.95 on December 31, 1993. However, the price change was
offset somewhat by $0.05 per share in income dividends and $1.31 per share
in capital gains distributions. The Portfolio recorded a -9.67% total
return for the year, compared with 1.32% for the unmanaged Standard &
Poor's 500 Index, and a -1.00% return for the 70 growth funds tracked by
Lipper Analytical Services, Inc. Lipper is an independent firm that tracks
performance of variable annuity investment options.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - Capital Growth Portfolio is
positioned for 1995 with holdings that include cable, retail,
telecommunications, entertainment, healthcare, and financial stocks.

The Portfolio's performance trailed the Index in part because of its
holdings in the cable and retail industries. Cable stocks dropped due to
renewed FCC regulation of basic cable rates and the collapse of some
high-profile mergers. In addition, some retail holdings suffered in
anticipation of disappointing Christmas sales. Looking forward, the cable
industry should benefit from an improved regulatory environment, new
opportunities from substantially increased channel capacity, and
prospective joint ventures and mergers.

Several major developments influenced the domestic portion of the
Portfolio during the year. ITT proposed the acquisition of Caesar's World,
which we later sold at a substantial profit. We purchased United
Healthcare, U.S. HealthCare, and Baxter International in light of the
improved outlook for the healthcare industry and these companies in
particular. And the Portfolio's financial holdings were increased through
the purchase of AMBAC and MBIA, two municipal-bond insurers.

The Portfolio's investment in foreign stocks increased during the year
in part through the purchase of ENDESA, a leading Spanish utility company.
We also added to our holdings in Nokia, a rapidly growing Finnish
manufacturer of cellular telephones. In late December, all Latin American
stock markets declined sharply following the devaluation of the Mexican
peso. We used this opportunity to purchase two of the largest telephone
companies in Argentina--Telefonica de Argentina and Telecom Argentina--as
well as Telespe, a Brazilian telephone company.

Looking forward, we believe the market's overall valuation remains
reasonable, given 1994's rise in corporate earnings and our expectation for
further earnings gains in 1995. We are also encouraged by the moderate
outlook for U.S. inflation and economic activity in the new year. In view
of these prospects, we believe the Portfolio is well positioned to benefit
shareholders over time.

Sincerely,

Your Portfolio Management Team

/s/William F. Gadsden /s/Steven P. Aronoff
William F. Gadsden Steven P. Aronoff
Lead Portfolio Manager

/s/Julia D. Cox
Julia D. Cox

3
<PAGE>
Capital Growth Portfolio
Portfolio Summary as of December 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Capital Growth Portfolio
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,033 -9.67% -9.67%
5 Year $15,008 50.08% 8.46%
Life of
Fund* $29,783 197.83% 12.22%

S&P 500 Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,132 1.32% 1.32%
5 Year $15,174 51.74% 8.69%
Life of
Fund* $32,758 227.58% 13.43%

*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

Yearly Periods Ended December 31

Capital Growth Portfolio
Year Amount
- ---------------------
7/31/85* 10000
85 11245
86 13752
87 13492
88 16469
89 20215
90 18708
91 26108
92 27785
93 33587
94 30339

S&P 500 Index
Year Amount
- ---------------------
7/31/85* 10000
85 11257
86 13358
87 14059
88 16394
89 21589
90 20919
91 27292
92 29371
93 32331
94 32758

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the Capital Growth Portfolio.

- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
Equity Securities 95%
Cash Equivalents 5%
----
100%
====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

Sector breakdown of the Portfolio's equity holdings

Media 18%
Consumer Discretionary 15% A proposed acquisition in the
Communications 12% gaming industry and a major
Technology 10% telecommunications merger benefited
Financial 10% Capital Growth Portfolio.
Health 7%
Durables 7%
Utilities 4%
Energy 4%
Other 8%
----
95%
====

- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- --------------------------------------------------------------------------
1. Time Warner Inc.
Publishing, broadcasting, and video entertainment company
2. Tele-Communications Inc.
Cable TV systems and microwave services
3. Comcast Corp.
Cable TV, sound and telecommunication systems
4. Rogers Communications Inc.
Cable TV and cellular telephones in Canada
5. Intel Corp.
Semiconductor memory circuits
6. Chrysler Corp.
Leading automobile manufacturer
7. American Telephone & Telegraph Co.
Telecommunication services and business systems
8. Century Telephone Enterprises
Telecommunication services
9. Astra AB
Pharmaceutical company
10. Microsoft Corp.
Computer operating systems software

4
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------------------------------------
4.8% REPURCHASE AGREEMENT
------------------------------------------------------------------------------------
12,504,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/30/94 at 5.875%, to be repurchased at
$12,512,162 on 1/3/95, collateralized by a $12,740,000
U.S. Treasury Note, 6.875%, 7/31/99 (Cost $12,504,000) 12,504,000
----------
------------------------------------------------------------------------------------
0.3% CONVERTIBLE BONDS
------------------------------------------------------------------------------------
FINANCIAL
Banks 1,000,000 Banco Nacional de Mexico, 7%, 12/15/99
(Cost $1,226,250) . . . . . . . . . . . . . . . . . . . 795,000
----------
------------------------------------------------------------------------------------
2.2% CONVERTIBLE PREFERRED STOCKS
------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------
DURABLES
Automobiles 43,000 Chrysler Corp., $4.625 (Cost $5,490,623) . . . . . . . . 5,901,750
-----------
------------------------------------------------------------------------------------
0.3% PREFERRED STOCKS
------------------------------------------------------------------------------------
FINANCIAL
Banks 8,000 First Nationwide Bank, non-cum. 11.5% (Cost $808,000). . . 783,000
-----------
------------------------------------------------------------------------------------
90.9% COMMON STOCKS
------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 14.6%
Apparel & Shoes 0.6% 46,200 Jones Apparel Group, Inc.* . . . . . . . . . . . . . . . 1,189,650
15,600 Luxottica Group SpA (ADR) . . . . . . . . . . . . . . . . 532,350
----------
1,722,000
----------
Department &
Chain Stores 2.8% 241,500 Charming Shoppes Inc. . . . . . . . . . . . . . . . . . . 1,599,937
55,200 Consolidated Stores Corp.* . . . . . . . . . . . . . . . . 1,028,100
144,000 Filene's Basement Corp.* . . . . . . . . . . . . . . . . . 666,000
55,600 Fred Meyer Inc.* . . . . . . . . . . . . . . . . . . . . . 1,709,700
40,000 Limited Inc. . . . . . . . . . . . . . . . . . . . . . . . 725,000
71,700 Wal-Mart Stores Inc. . . . . . . . . . . . . . . . . . . . 1,523,625
----------
7,252,362
----------
Hotels & Casinos 5.3% 108,000 Carnival Corp., Class A . . . . . . . . . . . . . . . . . 2,295,000
122,100 Circus Circus Enterprises Inc.* . . . . . . . . . . . . . 2,838,825
5,000 Club Mediterranee* . . . . . . . . . . . . . . . . . . . . 418,461
146,750 Mirage Resorts Inc.* . . . . . . . . . . . . . . . . . . . 3,008,375
58,500 President Riverboat Casinos* . . . . . . . . . . . . . . . 519,188
55,200 Promus Companies Inc.* . . . . . . . . . . . . . . . . . . 1,711,200
88,200 Royal Caribbean Cruises Ltd. . . . . . . . . . . . . . . . 2,513,700
40,400 Station Casinos Inc.* . . . . . . . . . . . . . . . . . . 525,200
----------
13,829,949
----------
Recreational Products 2.8% 112,000 Acclaim Entertainment Inc.* . . . . . . . . . . . . . . . 1,610,000
38,200 Bally Gaming International Inc.* . . . . . . . . . . . . 405,875
111,800 Electronic Arts Inc.* . . . . . . . . . . . . . . . . . . 2,152,150
202,800 International Game Technology Inc. . . . . . . . . . . . . 3,143,400
----------
7,311,425
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.

5
<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specialty Retail 3.1% 196,800 Fingerhut Companies, Inc. . . . . . . . . . . 3,050,400
95,000 Home Shopping Network Inc.* . . . . . . . . . 950,000
104,300 Intelligent Electronics, Inc. . . . . . . . . 834,400
40,000 Spiegel Inc. "A" . . . . . . . . . . . . . . . 405,000
96,000 Toys "R" Us Inc.* . . . . . . . . . . . . . . 2,928,000
----------
8,167,800
----------

CONSUMER STAPLES 1.2%

Food & Beverage 0.9% 72,000 Panamerican Beverages Inc. "A" . . . . . . . . 2,277,000
----------
Package Goods/
Cosmetics 0.3% 56,600 American Safety Razor Co.* . . . . . . . . . . 778,250
----------

HEALTH 7.3%

Biotechnology 0.7% 44,000 Biogen Inc.* . . . . . . . . . . . . . . . . 1,837,000
----------
Health Industry
Services 1.6% 52,000 Beverly Enterprises Inc.* . . . . . . . . . . 747,500
40,000 U.S. HealthCare, Inc. . . . . . . . . . . . . 1,650,000
40,000 United Healthcare Corp. . . . . . . . . . . . 1,805,000
----------
4,202,500
----------
Hospital Management 0.6% 40,000 Columbia/HCA Healthcare Corp. . . . . . . . . 1,460,000
----------
Medical Supply &
Specialty 0.0% 3,500 Sunrise Medical, Inc.* . . . . . . . . . . . . 96,688
----------
Pharmaceuticals 4.4% 7,500 Astra AB "A" (Free) . . . . . . . . . . . . . 193,795
171,050 Astra AB "B" (Free) . . . . . . . . . . . . . 4,362,258
55,000 Baxter International Inc. . . . . . . . . . . 1,553,750
80,000 Carter-Wallace Inc. . . . . . . . . . . . . . 1,040,000
1,300 Schering AG . . . . . . . . . . . . . . . . . 853,215
27,000 Schering-Plough Corp. . . . . . . . . . . . . 1,998,000
20,000 Warner-Lambert Co. . . . . . . . . . . . . . . 1,540,000
----------
11,541,018
----------
COMMUNICATIONS 12.5%

Cellular Telephone 2.3% 63,000 AirTouch Communications, Inc.* . . . . . . . 1,834,875
52,175 Associated Group, Inc. "A"* . . . . . . . . . 1,226,112
52,175 Associated Group, Inc. "B"* . . . . . . . . . 1,226,112
27,500 Grupo Iusacell S.A. de CV "L" (ADR)* . . . . . 512,187
84,000 NEXTEL Communications Inc. "A"* . . . . . . . 1,207,500
----------
6,006,786
----------
Telephone/
Communications 10.2% 110,800 American Telephone & Telegraph Co. . . . . . 5,567,700
186,900 Century Telephone Enterprises . . . . . . . . 5,513,550
7,900 Indonesia Satellite Corp. (ADR)* . . . . . . . 282,425
60,000 Mobile Telecommunications Technology Corp.* . 1,170,000
305 Nippon Telegraph & Telephone Corp. . . . . . . 2,697,029
75,132 Southwestern Bell Corp. . . . . . . . . . . . 3,033,455
31,800 Telecom Argentina S.A. "B" (ADR) . . . . . . . 1,645,650
3,402,000 Telecomunicacoes de Sao Paulo S.A. (pfd.) . . 483,992
36,000 Telefonica de Argentina (ADR) . . . . . . . . 1,908,000
96,000 Telephone & Data Systems, Inc. . . . . . . . . 4,428,000
----------
26,729,801
----------

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL 9.6%
Banks 2.8% 40,000 Chemical Banking Corp. . . . . . . . . . . . . 1,435,000
40,000 Citicorp . . . . . . . . . . . . . . . . . . . 1,655,000
16,875 First Commerce Corp. . . . . . . . . . . . . . 371,250
2,000 First Empire State Corp. . . . . . . . . . . . 272,000
40,000 GP Financial Corp. . . . . . . . . . . . . . . 825,000
103,000 MBNA Corp. . . . . . . . . . . . . . . . . . . 2,407,625
9,000 Mercantile Bancorporation Inc. . . . . . . . . 281,250
-----------
7,247,125
-----------
Insurance 4.8% 36,000 AMBAC Inc. . . . . . . . . . . . . . . . . . . 1,341,000
60,000 EXEL, Ltd. . . . . . . . . . . . . . . . . . . 2,370,000
31,300 General Re Corp. . . . . . . . . . . . . . . . 3,873,375
37,800 Liberty Corp. . . . . . . . . . . . . . . . . 959,175
20,000 MBIA Inc. . . . . . . . . . . . . . . . . . . 1,122,500
52,500 Mid Ocean Limited* . . . . . . . . . . . . . . 1,430,625
125,000 Western National Corp. . . . . . . . . . . . . 1,609,375
-----------
12,706,050
-----------
Other Financial
Companies 1.4% 44,000 Federal National Mortgage Association . . . . 3,206,500
9,000 Nichiei Co., Ltd. . . . . . . . . . . . . . . 578,139
-----------
3,784,639
-----------
Real Estate 0.6% 115,000 Price Enterprises, Inc.* . . . . . . . . . . . 1,480,625
-----------
MEDIA 17.7%
Broadcasting &
Entertainment 6.6% 52,000 BET Holdings Inc. "A"* . . . . . . . . . . . . 786,500
32,800 Jacor Communications, Inc. "A"* . . . . . . . 434,600
23,500 Savoy Pictures Entertainment Inc.* . . . . . . 152,750
368,700 Time Warner Inc. . . . . . . . . . . . . . . . 12,950,588
4,000 Viacom Inc. "A"* . . . . . . . . . . . . . . . 166,500
69,207 Viacom Inc. "B"* . . . . . . . . . . . . . . . 2,811,534
50,000 Viacom Inc. Rights* . . . . . . . . . . . . . 56,250
-----------
17,358,722
-----------
Cable Television 10.8% 622,850 Comcast Corp. (Special) "A" . . . . . . . . . 9,770,959
535,000 Rogers Communications Inc. "B"* . . . . . . . 7,151,132
518,307 Tele-Communications Inc. "A"* . . . . . . . . 11,273,177
-----------
28,195,268
-----------
Print Media 0.3% 14,300 Scholastic Corp.* . . . . . . . . . . . . . . . 729,300
-----------
SERVICE INDUSTRIES 0.6%
Investment 42,000 Franklin Resources Inc. . . . . . . . . . . . 1,496,250
-----------
DURABLES 4.5%
Automobiles 2.4% 44,000 Autoliv AB (Free)* . . . . . . . . . . . . . 1,693,549
60,000 Collins & Aikman Corp.* . . . . . . . . . . . 510,000
151,200 Ford Motor Co. . . . . . . . . . . . . . . . . 4,233,600
-----------
6,437,149
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

7
<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunications
Equipment 1.9% 40,000 DSC Communications Corp.* . . . . . . . . . . 1,435,000
22,000 Nokia AB Oy (ADR) . . . . . . . . . . . . . . 1,650,000
12,600 Nokia AB Oy (Preference)* . . . . . . . . . . 1,856,696
---------
4,941,696
---------
Tires 0.2% 20,000 Cooper Tire & Rubber Co. . . . . . . . . . . 472,500
---------
MANUFACTURING 2.3%

Containers & Paper 0.6% 92,000 Stone Container Corp.* . . . . . . . . . . . 1,587,000
---------
Diversified
Manufacturing 0.4% 60,000 Canadian Pacific Ltd. . . . . . . . . . . . . 900,000
---------
Electrical Products 1.1% 100,000 Philips NV (New York shares) . . . . . . . . 2,937,500
---------
Machinery/
Components/Controls 0.2% 35,000 Daewoo Heavy Industries Ltd.* . . . . . . . . 545,213
700 Daewoo Heavy Industries Ltd. (New(b))* . . . . 10,993
---------
556,206
---------
TECHNOLOGY 9.1%

Computer Software 2.7% 52,600 Informix Corp.* . . . . . . . . . . . . . . . 1,689,775
74,150 Microsoft Corp.* . . . . . . . . . . . . . . . 4,532,419
1,400 SAP AG . . . . . . . . . . . . . . . . . . . . 926,075
---------
7,148,269
---------
Diverse Electronic
Products 1.0% 46,000 Motorola Inc. . . . . . . . . . . . . . . . . 2,662,250
---------
EDP Peripherals 0.6% 60,000 Adaptec Inc.* . . . . . . . . . . . . . . . . 1,417,500
---------
Electronic Components/
Distributors 1.5% 41,000 Kyocera Corp. . . . . . . . . . . . . . . . . 3,041,152
2,000 Kyocera Corp. (ADR) . . . . . . . . . . . . . 298,000
371 Samsung Electronics Co., Ltd. (GDS) . . . . . 22,770
4,202 Samsung Electronics Co., Ltd.(a) . . . . . . . 620,668
174 Samsung Electronics Co., Ltd. (New(b))(a) . . 25,347
---------
4,007,937
---------
Electronic Data
Processing 0.6% 20,000 International Business Machines Corp. . . . . 1,470,000
---------
Office/Plant
Automation 1.1% 80,000 Cisco Systems, Inc.* . . . . . . . . . . . . 2,810,000
---------
Semiconductors 1.6% 40,000 Advanced Micro Devices Inc.* . . . . . . . . 995,000
50,000 Intel Corp. . . . . . . . . . . . . . . . . . 3,193,750
---------
4,188,750
---------
ENERGY 4.3%
Oil & Gas Production 2.0% 20,000 Anadarko Petroleum Corp. . . . . . . . . . . 770,000
40,000 Apache Corp. . . . . . . . . . . . . . . . . . 1,000,000
82,500 Perez Companc S.A. "B" . . . . . . . . . . . . 339,883
59,000 Perez Companc S.A. "B" (ADR) . . . . . . . . . 486,750
78,800 Triton Energy Corp.* . . . . . . . . . . . . . 2,679,200
---------
5,275,833
---------
</TABLE>

The accompanying notes are an integral part of the financial statements.

8
<PAGE>

<TABLE>

INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------

% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil Companies 2.0% 40,000 Chevron Corp . . . . . . . . . . . . . . . . 1,785,000
160,000 YPF SA "D" (ADR) . . . . . . . . . . . . . . 3,420,000
-----------
5,205,000
-----------
Oilfield Services/
Equipment 0.3% 168,800 Global Marine Inc.* . . . . . . . . . . . . 611,900
-----------
METALS AND MINERALS 1.4%

Steel & Metals 43,200 Allegheny Ludlum Corp. . . . . . . . . . . . 810,000
7,400 Oregon Steel Mills Inc. . . . . . . . . . . 115,625
25,000 Pohang Iron & Steel Co., Ltd. . . . . . . . . 731,250
148,000 Usinas Siderurgicas de Minas Gerais
S/A (pfd.) (ADR) . . . . . . . . . . . . . 1,961,000
-----------
3,617,875
-----------
CONSTRUCTION 1.6%

Building Materials 0.7% 6,400 Mannesmann AG (Bearer) . . . . . . . . . . . 1,742,958
-----------
Building Products 0.3% 40,000 USG Corp.* . . . . . . . . . . . . . . . . . 780,000
-----------
Homebuilding 0.6% 99,000 Hovnanian Enterprises Inc. "A"* . . . . . . . 532,125
69,900 Kaufman & Broad Home Corp. . . . . . . . . . . 899,963
20,000 Toll Brothers Inc.* . . . . . . . . . . . . . 197,500
-----------
1,629,588
-----------
UTILITIES 4.2%
Electric Utilities 20,000 CMS Energy Corp. . . . . . . . . . . . . . . 457,500
30,000 Centerior Energy Corp. . . . . . . . . . . . . 266,250
10,000 Central Costanera SA (ADR) . . . . . . . . . . 265,000
7,156,000 Companhia Energetica de Minas Gerais (pfd.) . 650,545
69,900 Destec Energy Inc.* . . . . . . . . . . . . . 742,687
50,000 Empresa Nacional de Electricidad SA (ADR) . . 2,025,000
30,000 Illinova Corp. . . . . . . . . . . . . . . . . 652,500
25,000 Korea Electric Power Co. . . . . . . . . . . . 861,196
58,000 Midlands Electricity PLC . . . . . . . . . . . 739,750
50,000 National Power PLC . . . . . . . . . . . . . . 383,412
99,000 Public Service Co. of New Mexico* . . . . . . 1,287,000
25,000 Shandong Huaneng Power Co. (ADR)* . . . . . . 240,625
50,000 Southern Electric PLC . . . . . . . . . . . . 630,477
30,000 TNP Enterprises Inc. . . . . . . . . . . . . . 446,250
60,000 Unicom Corp. . . . . . . . . . . . . . . . . . 1,440,000
-----------
11,088,192
-----------
TOTAL COMMON STOCKS (Cost $240,313,574) . . . 237,698,661
-----------
------------------------------------------------------------------------
1.5% WARRANTS
------------------------------------------------------------------------

TECHNOLOGY

Semiconductors 284,600 Intel Corp. Warrants (expire 3/14/98)*
(Cost $3,317,369) . . . . . . . . . . . . 3,948,825
-----------
- --------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $263,659,816)(c) . . . . . . . . . . 261,631,236
===========

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

</TABLE>

The accompanying notes are an integral part of the financial statements.

9
<PAGE>

CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
* Non-income producing security.

(a) Security valued in good faith by the Valuation Committee of the Trustees.
The cost and market value of this security at December 31, 1994
aggregated $260,462 and $646,015 (.25% of net assets), respectively.

(b) New shares issued during 1994, eligible for a pro rata share of 1994
dividends.

(c) At December 31, 1994, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $263,612,803 was as follows:

Aggregate gross unrealized appreciation for all investments
in which there is an excess of market value
over tax cost . . . . . . . . . . . . . . . . . . . . . . . $ 18,361,493

Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost
over market value . . . . . . . . . . . . . . . . . . . . . (20,343,060)
-------------
Net unrealized depreciation. . . . . . . . . . . . . . . . . $ (1,981,567)
=============
- --------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1994, aggregated
$190,827,357 and $162,561,433, respectively.

The accompanying notes are an integral part of the financial statements.

10
<PAGE>

<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES

DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $263,659,816) (Note A) . . . $261,631,236
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,276
Receivables:
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . 2,981,543
Portfolio shares sold . . . . . . . . . . . . . . . . . . . . . . 561,600
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . 282,241
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 265,506,896
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . $8,801,508
Portfolio shares redeemed . . . . . . . . . . . . . . . . . . . . 25,873
Due to Adviser (Note B) . . . . . . . . . . . . . . . . . . . . . 104,624
Accrued expenses (Note B) . . . . . . . . . . . . . . . . . . . . 44,136
----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 8,976,141
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . $256,530,755
============

NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . . . $ 507,243
Unrealized depreciation on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . (2,028,580)
Foreign currency related transactions . . . . . . . . . . . . . (4,400)
Accumulated net realized gain . . . . . . . . . . . . . . . . . . 8,707,226
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 249,349,266
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . $256,530,755
============
NET ASSET VALUE, offering and redemption price per share
($256,530,755 -:- 20,979,934 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) . . $12.23
======
</TABLE>

The accompanying notes are an integral part of the financial statements.

11
<PAGE>

<TABLE>

CAPITAL GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------

STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $37,041) . . . $ 2,191,376
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 460,519
------------
2,651,895
Expenses (Note A):
Management fee (Note B) . . . . . . . . . . . . . . . . . . $ 1,199,585
Administrative fees (Note B) . . . . . . . . . . . . . . . 45,253
Accounting fees (Note B) . . . . . . . . . . . . . . . . . 31,685
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . 11,212
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 98,462
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . 25,795
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,798
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,731 1,456,521
------------ ------------
Net investment income . . . . . . . . . . . . . . . . . . . . 1,195,374
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . 8,768,082
Foreign currency related transactions . . . . . . . . . . . (26,177) 8,741,905
------------
Net unrealized depreciation during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (35,951,742)
Foreign currency related transactions . . . . . . . . . . . (46) (35,951,788)
------------ ------------
Net loss on investment transactions . . . . . . . . . . . . . (27,209,883)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . (26,014,509)
============

The accompanying notes are an integral part of the financial statements.

12
</TABLE>

<PAGE>

<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . $ 1,195,374 $ 933,809
Net realized gain from investment transactions . . . . . . . . . . . 8,741,905 23,896,099
Net unrealized appreciation (depreciation) on investment
transactions during the period . . . . . . . . . . . . . . . . . (35,951,788) 13,526,410
------------- ------------
Net increase (decrease) in net assets resulting from operations (26,014,509) 38,356,318
------------- ------------
Distributions to shareholders from:
Net investment income ($0.05 and $0.07 per share, respectively). . . (889,382) (1,052,879)
------------- ------------
Net realized gain from investment transactions
($1.31 and $0.27 per share, respectively) . . . . . . . . . . . . (23,981,060) (3,623,212)
------------- ------------
Portfolio share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . 157,574,508 137,863,548
Net asset value of shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . . . . . 24,870,442 4,676,091
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . (131,982,527) (86,357,046)
------------- ------------
Net increase in net assets from Portfolio share transactions . . . . . 50,462,423 56,182,593
------------- ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . (422,528) 89,862,820
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . 256,953,283 167,090,463
============= ============
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $507,243 and $238,541, respectively). . . . . . $256,530,755 $256,953,283
------------- ------------

OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . . 17,184,932 13,146,981
------------- ------------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,319,350 10,095,666
Shares issued to shareholders in reinvestment of distributions . . . 1,905,054 375,250
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (10,429,402) (6,432,965)
------------- ------------
Net increase in Portfolio shares . . . . . . . . . . . . . . . . . . 3,795,002 4,037,951
------------- ------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . 20,979,934 17,184,932
============= ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

13
<PAGE>

<TABLE>

CAPITAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>

Six For the Period
Months July 16, 1985
Ended (commencement
Years Ended December 31, (e) December of operations)
---------------------------------------------------------------- 31, to June 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
---------------------------------------------------------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.95 $12.71 $12.28 $8.99 $10.21 $8.53 $ 7.06 $ 7.67 $ 7.93 $ 6.00(b)
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Income from investment
operations:
Net investment
income (a) . . . . .06 .06 .11 .16 .25 .35 .16 .15 .09 .19
Net realized and
unrealized gain
(loss) on investment
transactions . . . (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28) (.07) 1.87
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Total from investment
operations . . . . (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13) .02 2.06
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Less distributions from:
Net investment
income . . . . . . (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09) (.07) (.13)
Net realized gains
on investment
transactions . . . (1.31) (.27) (.23) -- (.23) -- -- (.39) (.21) --
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Total distributions . (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48) (.28) (.13)
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Net asset value,
end of period . . . $12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06 $ 7.67 $ 7.93
====== ====== ====== ===== ===== ===== ====== ===== ===== =====
TOTAL RETURN (%) . . (9.67) 20.88 6.42 39.56 (7.45) 22.75 22.07 (1.88) .26(d) 34.66(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) 257 257 167 108 45 45 17 10 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) . . .58 .60 .63 .71 .72 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) . . .47 .46 .95 1.49 2.71 3.51 2.17 1.68 2.21(c) 2.95(c)
Portfolio turnover
rate (%) . . . . . 66.44 95.31 56.29 58.88 61.39 63.96 129.75 113.34 38.78(c) 86.22(c)

(a) Portion of expenses
reimbursed (Note B) $ -- $ -- $ -- $ -- $ -- $ .01 $ .01 $ .04 $ .20 $ .81
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the
period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.

</TABLE>

14
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

A. Significant Accounting Policies
- -------------------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, diversified management investment company.
Its shares of beneficial interest are divided into six separate diversified
series, called "Portfolios." These financial statements report on the Capital
Growth Portfolio.

The Fund is intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies ("Participating Insurance Companies"). As of
December 31, 1994, ownership breakdown of the Portfolio by each Participating
Insurance Company is as follows:

Portfolio
Participating -----------------
Insurance Companies Capital Growth
- ----------------------------------------------------------- -----------------
American Skandia Life Assurance Co. 0.1%
Banner Life Insurance Co. 1.1
Charter National Life Insurance Co. 27.3
Intramerica Life Insurance Co. 2.4
Mutual of America Life Insurance Co. 65.0
Paragon Life Insurance Co. 0.1
Union Central Life Insurance Co. 4.0
100.0%
=====

The policies described below are followed consistently by the Fund in the
preparation of the financial statements for its Portfolios in conformity with
generally accepted accounting principles.

Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.

Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.

All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Trustees.

15
<PAGE>

NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

Foreign Currency Translations. The books and records of the Portfolios are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:

(i) market value of investment securities, other assets and liabilities
at the daily rates of exchange, and

(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.

The Portfolios do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.

Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.

Forward Foreign Currency Exchange Contracts. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the
non-money market Portfolios may enter into forward foreign currency exchange
contracts ("contracts"). Contracts are recorded at market value. Certain risks
may arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts. Realized and unrealized
gains and losses arising from such transactions are included in net realized and
unrealized gain (loss) from foreign currency related transactions.

Repurchase Agreements. The Fund on behalf of each Portfolio may enter into
repurchase agreements with U.S. and foreign banks and broker/dealers whereby the
Fund, through its custodian, receives delivery of the underlying securities, the
amount of which at the time of purchase and each subsequent business day is
required to be maintained at such a level that the market value, depending on
the maturity of the repurchase agreement and the underlying collateral, is equal
to at least 100.5% of the resale price.

Federal Income Taxes. Each Portfolio is treated as a single corporate taxpayer
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its investment company taxable income to the separate accounts of the
Participating Insurance Companies which hold its shares. Accordingly, the
Portfolios paid no federal income taxes and no provision for federal income
taxes was required.

Distribution of Income and Gains. Dividends from the Capital Growth Portfolio
are declared and paid quarterly in April, July, October and January. During any
particular year, net realized gains from investment transactions for each
Portfolio, in excess of available capital loss carryforwards, would be taxable
to the Portfolio if not distributed and, therefore, will be distributed to the
Participating Insurance Companies.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to investments in forward contracts, passive foreign investment
companies, post October loss deferral, non-taxable distributions, and certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Portfolios may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of each Portfolio. The Portfolios
use the specific identification method for determining realized gain or loss on
investments for both financial and federal income tax reporting purposes.

Expenses. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.

Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.

16
<PAGE>

SCUDDER VARIABLE LIFE INVESTMENT FUND
- -------------------------------------------------------------------------------

B. Related Parties
- -------------------------------------------------------------------------------
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder,
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of 0.475% for
the Capital Growth Portfolio.

The Trustees authorized the Fund to pay the Adviser and Scudder Investor
Services, Inc. ("Investor Services"), a wholly-owned subsidiary of the Adviser,
for certain administrative expenses of the Fund in accordance with the
Agreement. Effective October 1, 1994, the Trustees authorized the elimination of
these administrative expenses.

The Trustees authorized the Fund on behalf of each Portfolio to pay Investor
Services for determining the daily net asset value per share and maintaining the
portfolio and general accounting records of the Fund. Effective October 1, 1994,
under a new agreement, the Trustees authorized the Fund to pay Scudder Fund
Accounting Corp., a wholly-owned subsidiary of the Adviser, for such services.

Related fees for such services are detailed in each Portfolio's statement of
operations.

For a period of five years from the date of execution of a Participation
Agreement with the Fund, and from year to year thereafter as agreed by the Fund
and the Participating Insurance Companies, each of the Participating Insurance
Companies has agreed to reimburse the Fund to the extent that the annual
operating expenses of any Portfolio of the Fund, other than the International
Portfolio, exceed three-quarters of one percent (0.75 of 1%) of that Portfolio's
average annual net assets. The Adviser may advance some or all of such
reimbursement to the Fund prior to receiving payment therefore from a
Participating Insurance Company, but it is under no obligation to do so. If the
Adviser does advance such reimbursement to the Fund and does not receive payment
therefore, it will be entitled to be repaid such amounts by the Fund. The amount
due to the Adviser represents unpaid management fee, administrative fees and
accounting fees.

The Fund pays each Trustee not affiliated with the Adviser and not a Trustee of
other Scudder affiliated funds $7,500 annually plus specified amounts for
attended board and committee meetings. The Fund pays each Trustee not affiliated
with the Adviser and who is a Trustee of other Scudder affiliated funds $5,000
annually plus specified amounts for attended board and committee meetings.
Allocated Trustees' fees for each Portfolio for the year ended December 31, 1994
are detailed in each Portfolio's statement of operations.

17
<PAGE>

SCUDDER VARIABLE LIFE INVESTMENT FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------

To the Trustees and Shareholders of Scudder Variable Life Investment Fund:

We have audited the accompanying statement of assets and liabilities of Scudder
Variable Life Investment Fund/Capital Growth Portfolio, including the investment
portfolio, as of December 31, 1994, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
eight years in the period then ended, for the six months ended December 31,
1986, and for the period July 16, 1985 (commencement of operations) to June 30,
1986. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Variable Life Investment Fund/Capital Growth Portfolio as of December
31, 1994, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the eight years in the period then ended, for
the six months ended December 31, 1986, and for the period July 16, 1985,
(commencement of operations) to June 30, 1986 in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 3, 1995

SCUDDER VARIABLE LIFE INVESTMENT FUND
TAX INFORMATION
- -------------------------------------------------------------------------------

Pursuant to section 852 of the Internal Revenue Code, the Capital Growth
Portfolio designates $5,511,650 as capital gain dividends for the year ended
December 31, 1994.

<PAGE>
Celebrating 75 Years of Serving Investors

Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment
counsel firm in the United States. Since its birth, Scudder's pioneering
spirit and commitment to professional long-term investment management have
helped shape the investment industry. In 1928, we introduced the nation's
first no-load mutual fund. Today we offer 36 pure no load(tm) funds,
including the first international mutual fund offered to U.S. investors.

Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our long-standing principles: managing money with integrity and
distinction; keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

LAW OFFICES OF
DECHERT PRICE & RHOADS

TEN POST OFFICE SQUARE SOUTH
BOSTON, MA 02109-4603

June 29, 1995

VIA EDGAR
- ----------
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street
Washington, D.C. 20549

Re: Variable Annuity Fund I of Southwestern Life
Scudder Variable Life Investment Fund
-----------------------------------------------
Gentlemen:

Enclosed for filing on behalf of Variable Annuity Fund I of
Southwestern Life (the "Separate Account") and Scudder Variable Life Investment
Fund (the "Scudder Fund") pursuant to Rule 497(b) under the Securities Act of
1933 (and in reliance on the exemption from the filing requirements of Rule
14a-6 under the Securities Exchange Act of 1934 provided by paragraph (j) of
Rule 14a-6 is a definitive proxy statement/prospectus and statement of
additional information, notice of special meeting, shareholder letter and proxy
card.

This filing relates to (i) the proposed conversion of the Separate
Account from a managed account to a unit investment trust and (ii) the proposed
investment of the assets of the Separate Account in the Capital Growth Portfolio
series of the Scudder Fund.

If you should have any comments or questions with regard to this
matter, please contact the undersigned at (617) 728-7152.

Very truly yours,

/s/Caroline Pearson
Caroline Pearson

cc: Edward McDonald