TIAA CREF LIFE FUND, 497, 1999-04-06

TIAA CREF LIFE FUND
497, 1999-04-06

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Prospectus
TIAA-CREF Life Funds

Stock Index Fund

Dated April 1, 1999

This prospectus contains important information about the TIAA-CREF Life Funds,
funds available only through the purchase of a variable annuity or other
variable insurance contract issued by TIAA-CREF Life Insurance Company
(TIAA-CREF Life). Please read this prospectus, along with the prospectus
describing the contract, before investing and keep both prospectuses for future
reference.

The TIAA-CREF Life Funds currently offers the investment portfolio (fund)
listed below.

The Stock Index Fund seeks to increase the value of your investment over the
long-term by investing in a diversified portfolio of common stocks selected to
track the overall U.S. stock market, as represented by a broad stock market
index.

TIAA-CREF Life Insurance Company and the TIAA-CREF Life Funds are part of the
TIAA-CREF group of companies.

Although we have registered these securities with the Securities and Exchange
Commission, the SEC has not judged them for investment merit and does not
guarantee that the information in this prospectus is accurate or adequate.
Anyone who suggests otherwise is committing a federal crime.

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Table of Contents

3 The Stock Index Fund--In Brief
6 Related fund performance
information
4 Investment objective and principal
investment strategies 7 Pricing of fund shares

8 Offering, purchasing and redeeming
shares
4 Investment Objective
4 Principal Investment Strategies
9 Dividends, distributions and taxes
4 The Russell 3000 Index
9 Financial highlights information
5 Other Investments
10 General matters
6 Fund management

This prospectus outlines the terms of the fund. It doesn't constitute an
offering in any jurisdiction where such an offering can't lawfully be made. No
dealer, salesman, or anyone else is authorized to give any information or to
make any representation about this offering other than what is contained in
this prospectus. If anyone does so, you shouldn't rely on it.

An investment in the Fund is not a deposit of the TIAA-CREF Trust Company, FSB,
and is not insured or guaranteed by the Federal Deposit Insurance Corporation
(FDIC) or any other government agency.

2
<PAGE>

The Stock Index Fund--In Brief

What is the fund's investment objective?

What are the fund's principal investment strategies?

The Stock Index Fund attempts to track the U.S. stock market as a whole by
investing substantially all of its assets in stocks included in the Russell
3000[RegTM] index, an index consisting of the 3,000 largest publicly-traded
U.S. corporations. The fund doesn't try to match the Russell 3000 precisely by
holding all 3,000 stocks. Rather, we use sampling to try to emulate the index's
overall investment characteristics. The portfolio won't be managed in the
traditional sense of picking individual securities based on economic,
financial, and market analysis, which means that a company may remain in the
portfolio even if it performs poorly. We will, however, use certain techniques
to attempt to slightly outperform the Russell 3000.

What are the principal risks of investing in the fund?

The Stock Index Fund's returns will fluctuate, so you could lose money on your
investment. Normally, we expect that when the overall U.S. stock market is
rising, the fund's value will rise, and when the stock market is falling, the
fund's value will fall. Stock values will rise and fall in response to changes
in overall market and economic conditions, and the financial condition of
individual companies. Stocks in general are subject to the following types of
risks:

- - Market risk--price volatility due to changing conditions in the financial
markets and, in some cases, changes in overall interest rates.

- - Financial risk--the possibility that a company's current earnings will fall
or that overall financial soundness will decline, reducing the stock's
value.

We also can't guarantee that the fund will be able to match the returns of the
Russell 3000 or the stock market in general.

How has the fund performed?

Because the fund has been operating only for a short time, we have not included
past performance information for the fund. For a discussion of the performance
of the TIAA Stock Index Account, an investment company managed by the same
adviser as the fund, see the "Related Fund Performance Information" section of
this prospectus.

3
<PAGE>

Investment objective and principal investment strategies

This section describes the Stock Index Fund's investment objective and the
principal investment policies and techniques it uses to accomplish its
objective. For a complete listing of the fund's policies and restrictions, see
the SAI.

Investment Objective

We can change the fund's investment objective without a shareholder vote,
although we'll notify you of any change if it is material.

Principal Investment Strategies

The fund attempts to track the U.S. stock market as a whole by investing
substantially all of its assets in stocks included in the Russell 3000
Index[RegTM] (see "The Russell 3000 Index," below). The fund doesn't try to
match the Russell 3000 precisely by holding all 3,000 stocks. Rather, we use
sampling to try to emulate the index's overall investment characteristics. The
portfolio won't be managed in the traditional sense of picking individual
securities based on economic, financial, and market analysis. This means that a
company can remain in the portfolio even if it performs poorly, unless the
company is removed from the Russell 3000. We will, however, use proprietary
quantitative scoring and trading techniques to attempt to slightly outperform
the Russell 3000.

We expect that in periods when the overall U.S. stock market is rising, the
fund's net asset value will also rise, while in market declines, the fund's net
asset value will likewise decline. We won't match the index precisely. However,
we expect the fund to closely track the index. The fund seeks to track the
index by calculating daily a correlation coefficient using the fund's returns
from the most recent 30 trading days and the index's returns for the same
period. We expect the correlation coefficient usually to be above 0.99 and, in
any case, never to fall below 0.98. If it approaches 0.98, we'll rebalance the
portfolio--a process which involves realigning portfolio weights and/or adding
more stocks to the fund's portfolio. Since the index's returns aren't reduced
by operating or investment expenses, the fund may not be able to match the
index because of the costs of buying and selling stocks and other expenses.
However, we expect investment expenses to be low compared to an actively
managed stock portfolio.

The Russell 3000 Index

The Russell 3000 is an index of the 3,000 largest publicly traded U.S.
corporations, based on the value of their outstanding stock. According to the
Frank Russell Com-

4
<PAGE>

pany, Russell 3000 companies account for about 98% of the total market
capitalization of the publicly-traded U.S. equity market. The market
capitalization of individual companies in the Russell 3000 ranged from $2
million to $345.8 billion, with an average of $4.2 billion as of December 31,
1998.

The Frank Russell Company includes stocks in the index solely on their market
capitalization and weights them by relative market value. The Frank Russell
Company can change stocks and their weightings in the index. We'll adjust the
fund's portfolio to reflect the changes as appropriate.

The Russell 3000 is a trademark and service mark of the Frank Russell Company.
The fund isn't promoted, endorsed, sponsored or sold by and isn't affiliated
with the Frank Russell Company. A stock's presence in the Russell 3000 doesn't
mean that the Frank Russell Company believes that it's an attractive
investment. The Frank Russell Company isn't responsible for any literature
about the fund and makes no representations or warranties about its content.

Using the Russell 3000 as the measure of the U.S. equity market isn't a
fundamental investment policy, so we can substitute other indices without
shareholder approval. We'll notify you, however, before making any change in
the target index.

Other Investments

The fund can hold other investments in seeking to achieve its investment
objective. These include:

- - investments whose return depends on stock market prices, such as stock index
futures contracts, stock options and options (puts and calls) on futures
contracts, and debt securities whose prices or interest rates are linked
to the return of a recognized stock market index;

- - investments with equity characteristics, such as bonds convertible into
common stock, warrants, preferred stock, and depository receipts for such
securities;

- - short-term debt securities and other money market instruments, including
those denominated in foreign currencies, for cash management purposes; and

- - options, futures contracts, options on futures, and other financial
contracts. The fund will make these types of investments for cash
management or hedging purposes, rather than for speculation.

For more information about these and other permitted fund investments and their
risks, see the SAI.

5
<PAGE>

Fund management

Teachers Advisors, Inc. (Advisors) manages the Stock Index Fund's assets, under
the supervision of the Board of Trustees of TIAA-CREF Life Funds, and is a
wholly-owned indirect subsidiary of Teachers Insurance and Annuity Association
of America (TIAA). Advisors is registered with the Securities and Exchange
Commission (SEC) under the Investment Advisers Act of 1940. The personnel of
Advisors who manage the fund also manage the investments of TIAA Separate
Account VA-1 and TIAA-CREF Mutual Funds and, through an affiliated investment
adviser, TIAA-CREF Investment Management, LLC, the investment accounts of the
College Retirement Equities Fund (CREF). Advisors is located at 730 Third
Avenue, New York, New York 10017.

Under its investment management agreement with TIAA-CREF Life Funds, Advisors
is entitled to an annual fee of 0.30% of the average daily net assets of the
Stock Index Fund for managing that fund. Advisors has voluntarily agreed to
waive a portion of its fee, so that the current investment advisory charge is
0.07% of fund's average daily net assets.

Advisors duties include conducting research, recommending investments, and
placing orders to buy and sell securities. Advisors is also responsible for
providing or obtaining at its own expense the services necessary to operate the
TIAA-CREF Life Funds on a day-to-day basis. These include custodial,
administrative, portfolio accounting, dividend disbursing, auditing, and
ordinary legal services.

Related fund performance information

The following table contains information about the historical performance of the
TIAA Separate Account VA-1 Stock Index Account (the "TIAA Stock Index Account"),
the only other existing stock index portfolio managed by Advisors, as of
December 31, 1998. The TIAA Stock Index Account is not a mutual fund; rather it
funds a variable annuity contract. It has an investment objective, policies,
strategies and risks substantially the same as those of the TIAA-CREF Life
Funds' Stock Index Fund. The data is provided to illustrate the experience of
Advisors' personnel in managing a substantially similar investment portfolio. It
doesn't represent the performance of the Stock Index Fund described in this
prospectus.

6
<PAGE>

These investment results are unaudited. They aren't intended to predict or
suggest the returns that either the Stock Index Fund or TIAA Stock Index Account
might experience in the future. The results are net of invest-ment management
and other operating expenses (including separate account charges of 0.30%) for
the TIAA Stock Index Account and reflect the waiver by Advisors of 0.23% of its
0.30% investment management fee. The Stock Index Fund has been designed to have
similar investment management expense charges and waivers. Note that no separate
account charges are deducted at the fund level for the Stock Index Fund,
although comparable charges will be deducted at the separate account contract
level.

<TABLE>
<CAPTION>
Average Annual Cumulative Rates
TIAA Stock Index Account Rates of Total of Total
(as of December 31, 1998) Return Return
- --------------------------- ---------------- -----------------
<S> <C> <C>
1 year 23.84% 23.84%
- --------------------------- -------------- ---------------
3 years 25.49% 97.63%
- --------------------------- -------------- ---------------
Since inception (11/1/94) 26.15% 163.27%
- --------------------------- -------------- ---------------
</TABLE>

Pricing of fund shares

We determine the net asset value (NAV) per share (share price) of a fund on
each day the New York Stock Exchange is open for business, when trading closes
on all U.S. national exchanges where securities or other investments of the
fund are principally traded. We will not price fund shares on days that the New
York Stock Exchange is closed. We compute the fund's NAV by dividing the value
of a fund's assets, less its liabilities, by the number of outstanding shares
of that fund.

Except as noted below, we use market quotations or independent pricing services
to value securities and other instruments. If market quotations or independent
pricing services aren't readily available, we'll use a security's "fair value",
as determined in good faith by or

7
<PAGE>

under the direction of the TIAA-CREF Life Funds' Board of Trustees. We also may
use fair value if events materially affecting the value of an investment (as
determined in our sole discretion) occur between the time when its price is
determined and the time the fund's net asset value is calculated.

Offering, purchasing and redeeming shares

Shares of the Stock Index Fund are not sold directly to you, but rather are
sold in a continuous offering to TIAA-CREF Life separate accounts to fund
variable annuity or other insurance contracts. Your premiums under the
contracts are placed in the appropriate investment account of the separate
account, and the assets of the investment account are invested in the shares of
the Stock Index Fund. The separate account purchases and redeems shares of the
fund for net asset value without sales or redemption charges.

For each day on which the fund's net asset value is calculated, the separate
account transmits to the fund any orders to purchase or redeem shares of the
fund based on the purchase payments, redemption requests, death benefits,
contract charges, and transfer requests from contractowners and beneficiaries
that have been processed on that day. The separate account purchases and redeems
shares of the fund at the fund's net asset value per share calculated as of that
same day.

For more information about investing in the fund, see the prospectus describing
the contract, which can be obtained by calling us toll-free at 800 842-2733,
extension 5509.

8
<PAGE>

Dividends, distributions and taxes

The tax status of your investment in the fund depends upon your contract. For a
complete discussion of the tax status of your contract, please refer to the
prospectus describing the contract.

Shares in the Stock Index Fund may only be held through a variable annuity or
other variable insurance contract. Under current tax law, any dividend or
capital gains distributions from the fund will be exempt from current taxation
if left to accumulate within your variable contract. Withdrawals from your
contract may be taxed as ordinary income. You may also be subject to a 10%
penalty tax if a withdrawal is made before age 59 1/2.

The fund expects to declare and distribute to its shareholders (i.e., separate
accounts) substantially all of its net investment income and net realized
capital gains. Normally, the fund will distribute dividends and capital gains
annually. In addition, the fund may occasionally be required to make
supplemental dividend or capital gains distributions at some other time during
the year.

All dividend and capital gains distributions from a fund will be automatically
reinvested by the separate account in additional shares of the fund.

The fund intends to qualify for taxation as a "regulated investment company"
under the Internal Revenue Code so that it will not be subject to federal
income tax to the extent its income is distributed to shareholders. In
addition, the fund intends to qualify under the Internal Revenue Code with
respect to the diversification requirements related to the tax-deferred status
of insurance company separate accounts.

Financial highlights information

Because the fund has limited operating history, no financial highlights
information is included in this prospectus. Financial statements for the fund
are in the SAI, which is available free upon request.

9
<PAGE>

General matters

Voting Rights

We don't plan to hold annual shareholder meetings. However, we may hold special
meetings to elect trustees, change fundamental policies, approve a management
agreement, or for other purposes. Each share (including fractional shares) is
entitled to one vote for each dollar of net asset value represented by that
share on all matters to which shareholders are entitled to vote. You should
refer to the SAI, as well as the separate prospectus describing your contract
and the separate account, which accompanies this prospectus, for more
information on your voting rights.

Year 2000 Issues

Like all financial and business organizations, the TIAA-CREF Life Funds and its
service providers depend on the smooth functioning of their computer systems to
operate. TIAA-CREF Life Funds' operations, including securities pricing and
trading, could be affected if these computer systems fail or incorrectly
process or calculate date-related information on or after January 1, 2000.

The TIAA-CREF Life Funds and Advisors have developed and have been actively
carrying out an extensive Year 2000 plan to remediate, test and certify all
internal computer systems, and to verify, to the extent possible, that external
service providers will be ready for the year 2000. While we have taken steps we
believe reasonably address the Year 2000 problem, we can't guarantee complete
success or eliminate the possibility that interaction with outside computer
systems could affect our operations. If the systems we rely upon do fail or
produce faulty data, there could be delays in properly processing transactions,
or we may be unable temporarily to engage in normal business activities. Also,
performance could be affected if a systems failure at a company or government
entity affects the price of securities the TIAA-CREF Life Funds owns.

Electronic Prospectuses

If you received this or the contract prospectus electronically and would like a
paper copies, please call 800 842-2733, extension 5509, and we will send paper
copies to you.

Householding

To lower costs and eliminate duplicate documents sent to your home, we may, if
the SEC allows, begin mailing only one copy of this and the contract
prospectus, prospectus supplements, annual and semi-annual reports, or any
other required documents, to your household, even if more than one participant
lives there. If you would prefer to continue receiving your own copy of any of
these documents, you may call us toll-free at 800 842-2733, extension 5509, or
write us.

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If you have any questions about the TIAA-CREF Life Funds' Stock Index Fund or
the variable contract, please call us at 800 223-1200.

More information about TIAA-CREF Life Funds can be found in the Statement of
Additional Information (SAI) for the fund dated April 1, 1999. When available,
the TIAA-CREF Life Funds will also provide more information about its
investments in its annual and semi-annual reports to shareholders. You can get
copies of the SAI and annual and semi-annual reports without charge by calling
800-842-2733, extension 5509 or writing us at TIAA-CREF Life Funds, 730 Third
Avenue, New York, New York 10017-3206. The SAI is "incorporated by reference"
into this prospectus -- that means it's legally part of the prospectus.

Information about TIAA-CREF Life Funds (including the SAI) can be reviewed and
copied at the Securities and Exchange Commission's (SEC) public reference room
(1-800-SEC-0330) in Washington, D.C. The information is also available through
the SEC's internet website at www.sec.gov. Copies of the information can also
be obtained, upon payment of a duplicating fee, by writing the SEC's Public
Reference Section, Washington, DC 20549-6009.

April 1, 1999

SEC File Nos. 333-61759, 811-08961
<PAGE>

TIAA-CREF LIFE FUNDS

Stock Index Fund

STATEMENT OF ADDITIONAL INFORMATION

April 1, 1999

This Statement of Additional Information (SAI) is not a prospectus, although it
should be read carefully in conjunction with the TIAA-CREF Life Funds'
prospectus dated April 1, 1999 (the prospectus). A copy of the prospectus may
be obtained by writing us at TIAA-CREF Life Funds, 730 Third Avenue, New York,
New York 10017-3206 or by calling 800 842-2733, extension 5509. Terms used in
the prospectus are incorporated in this SAI.

[TIAA-CREF logo]

<PAGE>

Table of Contents

<TABLE>
<S> <C>
Item Page
- ---------------------------------------------------------- ----
Investment Policies, Strategies and Restrictions ......... B-3
Management of the Fund ................................... B-8
Control Persons .......................................... B-9
Investment Advisory and Other Services ................... B-9
Fund History and Description of the Fund ................. B-10
Valuation of Assets ...................................... B-11
Brokerage Allocation ..................................... B-11
Performance Information .................................. B-12
Tax Status ............................................... B-13
Underwriters ............................................. B-14
Legal Matters ............................................ B-14
Experts .................................................. B-14
Financial Statements ..................................... B-14
Index to Audited Financial Statements .................... B-15
</TABLE>

B-2
<PAGE>

For purposes of this SAI, the term "fund" shall refer to the
TIAA-CREF Life Funds' Stock Index Fund.

Investment Policies, Strategies and Restrictions

The following information is intended to supplement the description of the
investment objective and policies of the fund in the prospectus. Under the
Investment Company Act of 1940, as amended (the 1940 Act), any of the fund's
fundamental policies may not be changed without the vote of a majority of the
fund's outstanding voting securities (as defined in the 1940 Act). The
non-fundamental investment restrictions contained in "Non-Principal Investment
Strategies and Risk Considerations" below, may be changed by the TIAA-CREF Life
Funds' Board of Trustees at any time.

Fundamental Policies
The following restrictions are fundamental policies of the fund:

1. The fund will not issue senior securities except as SEC regulations permit;

2. The fund will not borrow money, except: (a) it may purchase securities on
margin, as described in restriction 9 below; and (b) from banks (only in
amounts not in excess of 33 1/3% of the market value of the fund's assets
at the time of borrowing), and, from other sources, for temporary purposes
(only in amounts not exceeding 5% of the fund's total assets taken at
market value at the time of borrowing);

3. The fund will not underwrite the securities of other companies, except to
the extent that it may be deemed an underwriter in connection with the
disposition of securities from its portfolio;

4. The fund will not, with respect to at least 75% of the value of its total
assets, invest more than 5% of its total assets in the securities of any
one issuer, other than securities issued or guaranteed by the United
States Government, its agencies or instrumentalities;

5. The fund will not invest in an industry if after giving effect to that
investment the fund's holding in that industry would exceed 25% of its
total assets; however, this restriction does not apply to investments in
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;

6. The fund will not purchase real estate or mortgages directly;

7. The fund will not purchase commodities or commodities contracts, except to
the extent financial contracts (such as futures) are purchased as
described herein;

8. The fund will not make loans, except: (a) that the fund may make loans of
portfolio securities not exceeding 33 1/3% of the value of its total
assets, which are collateralized by either cash, United States Government
securities, or other means permitted by applicable law, equal to at least
the market value of the loaned securities, as reviewed daily; (b) loans
through entry into repurchase agreements; (c) privately-placed debt
securities may be purchased; (d) participation interests in loans, and
similar investments, may be purchased; or (e) through an interfund loan
program with affiliated investment companies, to the extent permitted by
applicable SEC regulations; and

9. The fund will not purchase any security on margin except that the fund may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities).

If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change of values of portfolio securities will not be considered a violation.

Non-Principal Investment Strategies and Risks

General
Besides equities, the fund can hold stock index futures contracts, options
(puts and calls) on futures contracts, and debt securities whose prices or
interest rates are linked to the return of a recognized stock market index, or
swap arrangements where the return is linked to a recognized stock market
index. The fund would make such investments in order to seek to match the total
return of Russell 3000. However, they might not track the return of the Russell
3000 in all cases and can involve additional credit risks. Investing in options
or futures contracts and entering into equity swaps involve special risks.
These are discussed below. Such investing by the fund is subject to any
necessary regulatory approvals.

The fund can hold other types of securities with equity characteristics, such
as bonds convertible into common stock, warrants, preferred stock, and
depository receipts for such securities. These securities are generally subject
to the same types of market and financial risks that are described under "What
are the Principal Risks of Investing in the Fund?" in the Prospectus.

The fund can hold fixed-income securities that it acquires because of mergers,
recapitalizations, or otherwise. For liquidity, the fund can also invest in
short-term debt securities and other money-market instruments, including those
denominated in foreign currencies. Fixed-income securities, including
short-term debt securities and other money market instruments, are subject to
interest rate risks and financial risks. Interest rate risks are the risks that
the instrument's value will decline if interest rates change. A rise in
interest rates usually causes the market value of fixed-rate securities to go
down, while rate deductions usually result in a market value increase.
Financial risks come from the possibility the issuer won't be able to pay
principal and interest when due.

B-3
<PAGE>

The fund also can invest in options and futures, as well as newly developed
financial instruments, such as equity swaps and equity-linked fixed-income
securities, so long as these are consistent with its investment objective and
regulatory requirements.

These investments and other fund investment strategies are discussed in detail
below.

Options and Futures
The fund can buy and sell options (puts and calls) and futures to the extent
permitted by the New York State Insurance Department, the SEC, and the
Commodity Futures Trading Commission ("CFTC"). We do not intend to use options
and futures strategies in a speculative manner but rather we would use them
primarily as hedging techniques or for cash management purposes.

Options and futures transactions may increase the fund's transaction costs and
portfolio turnover rate and will be initiated only when consistent with its
investment objectives.

Options. Option-related activities could include: (1) the sale of covered call
option contracts, and the purchase of call option contracts for the purpose of
a closing purchase transaction; (2) buying covered put option contracts, and
selling put option contracts to close out a position acquired through the
purchase of such options; and (3) selling call option contracts or buying put
option contracts on groups of securities and on futures on groups of securities
and buying similar call option contracts or selling put option contracts to
close out a position acquired through a sale of such options. This list of
options-related activities is not intended to be exclusive, and the fund may
engage in other types of options transactions consistent with its investment
objective and policies and applicable law.

A call option is a short-term contract (generally for nine months or less)
which gives the purchaser of the option the right to purchase the underlying
security at a fixed exercise price at any time prior to the expiration of the
option regardless of the market price of the security during the option period.
As consideration for the call option, the purchaser pays the seller a premium,
which the seller retains whether or not the option is exercised. The seller of
a call option has the obligation, upon the exercise of the option by the
purchaser, to sell the underlying security at the exercise price at any time
during the option period. Selling a call option would benefit the seller if,
over the option period, the underlying security declines in value or does not
appreciate above the aggregate of the exercise price and the premium. However,
the seller risks an "opportunity loss" of profits if the underlying security
appreciates above the aggregate value of the exercise price and the premium.

The fund may close out a position acquired through selling a call option by
buying a call option on the same security with the same exercise price and
expiration date as the call option that it had previously sold on that
security. Depending on the premium for the call option purchased by the fund,
the fund will realize a profit or loss on the transaction.

A put option is a similar short-term contract that gives the purchaser of the
option the right to sell the underlying security at a fixed exercise price at
any time prior to the expiration of the option regardless of the market price
of the security during the option period. As consideration for the put option
the purchaser pays the seller a premium, which the seller retains whether or
not the option is exercised. The seller of a put option has the obligation,
upon the exercise of the option by the purchaser, to purchase the underlying
security at the exercise price at any time during the option period. The buying
of a covered put contract limits the downside exposure for the investment in
the underlying security to the combination of the exercise price less the
premium paid. The risk of purchasing a put is that the market price of the
underlying stock prevailing on the expiration date may be above the option's
exercise price. In that case the option would expire worthless and the entire
premium would be lost.

The fund may close out a position acquired through buying a put option by
selling a put option on the same security with the same exercise price and
expiration date as the put option which it had previously bought on the
security. Depending on the premium of the put option sold by the fund, the fund
would realize a profit or loss on the transaction.

In addition to options (both calls and puts) on individual securities, there
are also options on groups of securities, such as the Standard & Poor's 100
Index traded on the Chicago Board Options Exchange. There are also options on
the futures of groups of securities such as the Standard & Poor's 500 Stock
Index and the New York Stock Exchange Composite Index. The selling of such
calls can be used in anticipation of, or in, a general market or market sector
decline that may adversely affect the market value of the fund's portfolio of
securities. To the extent that the fund's portfolio of securities changes in
value in correlation with a given stock index, the sale of call options on the
futures of that index would substantially reduce the risk to the portfolio of a
market decline, and, by so doing, provides an alternative to the liquidation of
securities positions in the portfolio with resultant transaction costs. A risk
in all options, particularly the relatively new options on groups of securities
and on the futures on groups of securities, is a possible lack of liquidity.
This will be a major consideration before the fund deals in any option.

There is another risk in connection with selling a call option on a group of
securities or on the futures of groups of securities. This arises because of
the imperfect correlation between movements in the price of the call option on
a particular group of securities and the price of the underlying securities
held in the portfolio. Unlike a covered call on an individual security, where a
large movement on the upside for the call option will be offset by a similar
move on the underlying stock, a move in the price of a call option on a group
of securities may not be offset by a similar move in the price of securities
held due to the difference in the composition of the particular group and the
portfolio itself.

B-4
<PAGE>

Futures. To the extent permitted by applicable regulatory authorities, the fund
may purchase and sell futures contracts on securities or other instruments, or
on groups or indexes of securities or other instruments. The purpose of hedging
techniques using financial futures is to protect the principal value of the
fund against adverse changes in the market value of securities or instruments
in its portfolio, and to obtain better returns on future investments than
actually may be available at the future time. Since these are hedging
techniques, the gains or losses on the futures contract normally will be offset
by losses or gains respectively on the hedged investment. Futures contracts
also may be offset prior to the future date by executing an opposite futures
contract transaction.

A futures contract on an investment 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 the securities or instrument underlying
the contract. By purchasing a futures contract -- assuming a "long" position --
the fund legally will obligate itself to accept the future delivery of the
underlying security or instrument and pay the agreed price. By selling a
futures contract -- assuming a "short" position -- it legally will obligate
itself to make the future delivery of the security or instrument against
payment of the agreed price.

Positions taken in the futures markets are not normally 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 fund usually will be
liquidated in this manner, the fund may instead make or take delivery of the
underlying securities or instruments whenever it appears economically
advantageous to the fund to do so. A clearing corporation associated with the
exchange on which futures are traded assumes responsibility for closing out
positions 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.

A stock index futures contract, unlike a contract on a specific security, does
not provide for 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 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.

Stock index futures may be used to hedge the equity investments of the fund
with regard to market (systematic) risk (involving the market's assessment of
overall 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 its securities portfolio
against an overall decline in the market for equity securities. Alternatively,
in anticipation of a generally rising market, the fund can seek 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 fund 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.

Unlike the purchase or sale of a security, no price is paid or received by the
fund upon the purchase or sale of a futures contract. Initially, the fund will
be required to deposit in a custodial account an amount of cash, United States
Treasury securities, or other permissible assets equal to approximately 5% of
the contract amount. This amount is known as "initial margin." The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments to and from the broker, called "variation margin," will be made on a
daily basis as the price of the underlying stock index fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as "marking to the market." For example, when the fund has
purchased a stock index futures contract and the price of the underlying stock
index has risen, that position will have increased in value, and the fund will
receive from the broker a variation margin payment equal to that increase in
value. Conversely, where the fund has purchased a stock index futures contract
and the price of the underlying stock index has declined, the position would be
less valuable and the fund would be required to make a variation margin payment
to the broker. At any time prior to expiration of the futures contract, the
fund may elect to close the position by taking an opposite position which will
operate to terminate the fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the fund, and the fund realizes a loss or a gain.

There are several risks in connection with the use of a futures contract as a
hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the
securities or instruments which are the subject of the hedge. The fund will
attempt to reduce this risk by engaging in futures transactions, to the extent
possible, where, in our judgment, there is a significant correlation between
changes in the prices of the futures contracts and the prices of the fund's
portfolio securities or instruments sought to be hedged.

Successful use of futures contracts for hedging purposes also is subject to the
user's ability to predict correctly movements in the direction of the market.
For example, it is possible that, where the fund has sold futures to hedge its
portfolio against declines in the

B-5
<PAGE>

market, the index on which the futures are written may advance and the values
of securities or instruments held in the fund's portfolio may decline. If this
occurred, the fund would lose money on the futures and also experience a
decline in value in its portfolio investments. However, we believe that over
time the value of the fund's portfolio will tend to move in the same direction
as the market indices which are intended to correlate to the price movements of
the portfolio securities or instruments sought to be hedged. It also is
possible that, for example, if the fund has hedged against the possibility of
the decline in the market adversely affecting stocks held in its portfolio and
stock prices increased instead, the fund will lose part or all of the benefit
of increased value of those stocks that it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the fund has insufficient cash, it may have to sell securities or instruments
to meet daily variation margin requirements. Such sales may be, but will not
necessarily be, at increased prices which reflect the rising market. The fund
may have to sell securities or instruments at a time when it may be
disadvantageous to do so.

In addition to the possibility that there may be an imperfect correlation, or
no correlation at all, between movements in the futures contracts and the
portion of the portfolio being hedged, the prices of futures contracts may not
correlate perfectly with movements in the underlying security or instrument due
to certain market distortions. First, all transactions in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the index and futures markets. Second, the margin requirements in the
futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than
the securities market does. Increased participation by speculators in the
futures market also may cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also because of the
imperfect correlation between movements in the futures contracts arid the
portion of the portfolio being hedged, even a correct forecast of general
market trends by Advisors, the investment advisor for the fund, still may not
result in a successful hedging transaction over a very short time period.

The fund may also use futures contracts and options on futures contracts to
manage its cash flow more effectively. To the extent that the fund enters into
non-hedging positions, it will do so only in accordance with certain CFTC
exemptive provisions. Thus, pursuant to CFTC Rule 4.5, the aggregate initial
margin and premiums required to establish non-hedging positions in commodity
futures or commodity options contracts may not exceed 5% of the liquidation
value of the fund's portfolio, after-taking into account unrealized profits and
unrealized losses on any such contracts it has entered into (provided that the
in-the-money amount of an option that is in-the-money when purchased may be
excluded in computing such 5%).

Firm Commitment Agreements and Purchase of "When-Issued" Securities
The fund can enter into firm commitment agreements for the purchase of
securities on a specified future date. We expect that these transactions will
be relatively infrequent. When the fund enters into a firm commitment
agreement, liability for the purchase price -- and the rights and risks of
ownership of the securities -- accrues to the fund at the time it becomes
obligated to purchase such securities, although delivery and payment occur at a
later date. Accordingly, if the market price of the security should decline,
the effect of the agreement would be to obligate the fund to purchase the
security at a price above the current market price on the date of delivery and
payment. During the time the fund is obligated to purchase such securities, it
will be required to segregate assets. See "Segregated Accounts," below.

Securities Lending
Subject to investment restriction 8(a) (relating to loans of portfolio
securities) set forth above, the fund may lend its securities to brokers and
dealers that are not affiliated with TIAA-CREF Life Insurance Company, are
registered with the SEC and are members of the NASD, and also to certain other
financial institutions. All loans will be fully collateralized. In connection
with the lending of its securities, the fund will receive as collateral cash,
securities issued or guaranteed by the United States Government (i.e., Treasury
securities), or other collateral permitted by applicable law, which at all times
while the loan is outstanding will be maintained in amounts equal to at least
102% of the current market value of the loaned securities, or such lesser
percentage as may be permitted by the Securities and Exchange Commission (SEC)
(not to fall below 100% of the market value of the loaned securities), as
reviewed daily. By lending its securities, the fund will receive amounts equal
to the interest or dividends paid on the securities loaned and in addition will
expect to receive a portion of the income generated by the short-term investment
of cash received as collateral or, alternatively, where securities or a letter
of credit are used as collateral, a lending fee paid directly to the fund by the
borrower of the securities. Such loans will be terminable by the fund at any
time and will not be made to affiliates of TIAA. The fund may terminate a loan
of securities in order to regain record ownership of, and to exercise beneficial
rights related to, the loaned securities, including but not necessarily limited
to voting or subscription rights, and may, in the exercise of its fiduciary
duties, terminate a loan in the event that a vote of holders of those securities
is required on a material matter. The fund may pay reasonable fees to persons
unaffiliated with the fund for services or for arranging such loans. Loans of
securities will be made only to firms deemed creditworthy. As with any extension
of credit, however, there are risks of delay in recovering the loaned
securities, or in liquidating collateral, should the borrower of securities
default, become the subject of bankruptcy proceedings, or otherwise be unable to
fulfill its obligations or fail financially.

B-6
<PAGE>

Illiquid Securities
The fund can invest up to 15 percent of its assets in investments that may not
be readily marketable. It may be difficult to sell these investments for their
fair market value.

Repurchase Agreements
Repurchase agreements are one of several short-term vehicles the fund can use
to manage cash balances effectively. In a repurchase agreement, we buy an
underlying debt instrument on condition that the seller agrees to buy it back
at a fixed time (usually a relatively short period) and price. The period from
purchase to repurchase is usually no more than a week and never more than a
year. Repurchase agreements have the characteristics of loans, and will be
fully collateralized (either with physical securities or evidence of book entry
transfer to the account of the custodian bank) at all times. During the term of
the repurchase agreement, the fund retains the security subject to the
repurchase agreement as collateral securing the seller's repurchase obligation,
continually monitors the market value of the security subject to the agreement,
and requires the fund's seller to deposit with the fund additional collateral
equal to any amount by which the market value of the security subject to the
repurchase agreement falls below the resale amount provided under the
repurchase agreement. The fund will enter into repurchase agreements only with
member banks of the Federal Reserve System, and with primary dealers in United
States Government securities or their wholly-owned subsidiaries whose
creditworthiness has been reviewed and found satisfactory by Advisors and who
have, therefore, been determined to present minimal credit risk.

Securities underlying repurchase agreements will be limited to certificates of
deposit, commercial paper, bankers' acceptances, or obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities, in which the fund entering into the agreement may otherwise
invest.

If a seller of a repurchase agreement defaults and does not repurchase the
security subject to the agreement, the fund entering into the agreement would
look to the collateral security underlying the seller's repurchase agreement,
including the securities subject to the repurchase agreement, for satisfaction
of the seller's obligation to the fund; in such event the fund might incur
disposition costs in liquidating the collateral and might suffer a loss if the
value of the collateral declines. In addition, if bankruptcy proceedings are
instituted against a seller of a repurchase agreement, realization upon the
collateral may be delayed or limited.

Swap Transactions
The fund may, to the extent permitted by the SEC, enter into privately
negotiated "swap" transactions with other financial institutions in order to
take advantage of investment opportunities generally not available in public
markets. In general, these transactions involve "swapping" a return based on
certain securities, instruments, or financial indices with another party, such
as a commercial bank, in exchange for a return based on different securities,
instruments, or financial indices.

By entering into a swap transaction, the fund may be able to protect the value
of a portion of its portfolio against declines in market value. The fund may
also enter into swap transactions to facilitate implementation of allocation
strategies between different market segments or countries or to take advantage
of market opportunities which may arise from time to time. The fund may be able
to enhance its overall performance if the return offered by the other party to
the swap transaction exceeds the return swapped by the fund. However, there can
be no assurance that the return the fund receives from the counterparty to the
swap transaction will exceed the return it swaps to that party.

While the fund will only enter into swap transactions with counterparties it
considers creditworthy (and will monitor the creditworthiness of parties with
which it enters into swap transactions), a risk inherent in swap transactions
is that the other party to the transaction may default on its obligations under
the swap agreement. If the other party to the swap transaction defaults on its
obligations, the fund entering into the agreement would be limited to the
agreement's contractual remedies. There can be no assurance that the fund will
succeed when pursuing its contractual remedies. To minimize the fund's exposure
in the event of default, it will usually enter into swap transactions on a net
basis (i.e., the parties to the transaction will net the payments payable to
each other before such payments are made). When the fund enters into swap
transactions on a net basis, the net amount of the excess, if any, of the
fund's obligations over its entitlements with respect to each such swap
agreement will be accrued on a daily basis and an amount of liquid assets
having an aggregate market value at least equal to the accrued excess will be
segregated by the fund's custodian. To the extent the fund enters into swap
transactions other than on a net basis, the amount segregated will be the full
amount of the fund's obligations, if any, with respect to each such swap
agreement, accrued on a daily basis. See "Segregated Accounts," below.

Swap agreements may be considered illiquid by the SEC staff
and subject to the limitations on illiquid investments. See "Illiquid
Securities" above.

To the extent that there is an imperfect correlation between the fund's
obligation to its counterparty under the swap and the return on related assets
in its portfolio, the swap transaction may increase the fund's financial risk.
No fund therefore will enter into a swap transaction unless it owns or has the
right to acquire the securities or instruments representative of the return it
is obligated to swap with the counterparty to the swap transaction. It is not
the intention of any fund to engage in swap transactions in a speculative
manner but rather primarily to hedge or manage the risks associated with assets
held in, or to facilitate the implementation of portfolio strategies of
purchasing and selling assets for, the fund.

B-7
<PAGE>

Segregated Accounts
In connection with when-issued securities, firm commitment agreements, and
certain other transactions in which the fund incurs an obligation to make
payments in the future, the fund may be required to segregate assets with its
custodian bank in amounts sufficient to settle the transaction. To the extent
required, such segregated assets can consist of liquid assets, including equity
or other securities, or other instruments such as cash, United States
Government securities or other obligations as may be permitted by law.

Investment Companies
The fund can invest up to 10 percent of its assets in other investment
companies.

Borrowing
The fund can borrow money from banks (no more than 33 1/3 percent of the market
value of its assets at the time of borrowing), rather than through the sale of
portfolio securities, when such borrowing appears more attractive for the fund.
It can also borrow money from other sources temporarily (no more than 5 percent
of the total market value of its assets at the time of borrowing), when, for
example, the fund needs to meet liquidity requirements caused by greater than
anticipated redemptions. See "Fundamental Policies" above.

Other Investment Techniques and Opportunities
The fund may take certain actions with respect to merger proposals, tender
offers, conversion of equity-related securities and other investment
opportunities with the objective of enhancing the portfolio's overall return,
regardless of how these actions may affect the weight of the particular
securities in the fund's portfolio. It is not our policy to select investments
based primarily on the possibility of one or more of these investment
techniques and opportunities being presented.

Portfolio Turnover
The transactions the fund engages in are reflected in its portfolio turnover
rate. The rate of portfolio turnover is calculated by dividing the lesser of
the amount of purchases or sales of portfolio securities during the fiscal year
by the monthly average of the value of the fund's portfolio securities
(excluding from the computation all securities, including options, with
maturities at the time of acquisition of one year or less). A high rate of
portfolio turnover generally involves correspondingly greater brokerage
commission expenses, which must be borne directly by the fund and ultimately by
the fund's shareholders. However, because portfolio turnover is not a limiting
factor in determining whether or not to sell portfolio securities, a particular
investment may be sold at any time, if investment judgment or account
operations make a sale advisable.

The fund does not have a fixed policy on portfolio turnover although, because a
higher portfolio turnover rate will increase brokerage costs, Advisors will
carefully weigh the added costs of short term investment against the gains
anticipated from such transactions.

Management of the Fund

The Board
A Board of Trustees (the Board) oversees the TIAA-CREF Life
Funds' business affairs and is responsible for major decisions about its
investment objective and policies. The Board delegates the day-to-day
management of the fund to Advisors and its officers (see below). The Board
meets periodically to review the fund's activities, contractual arrangements
with companies that provide services to the fund, and the performance of the
investment portfolio.

Trustees and Officers of the TIAA-CREF Life Funds

Jeanmarie C. Grisi 40 Trustee Treasurer, Carnegie Corporation of New York (a philanthropic
Carnegie Corporation of New York grantmaking foundation)
437 Madison Avenue
New York, New York 10022

Richard M. Norman 54 Trustee Vice President for Administration and Associate Treasurer,
Rutgers University Rutgers, The State University of New Jersey
Old Queens Building, Room 101
Somerset-George Street
New Brunswick, New Jersey 08903

Thomas G. Walsh** 57 Chairman of the Board and President, Teachers Personal Investors Services, Inc.
President ("TPIS"), since February 1994, and Executive Vice President,
TIAA and CREF
</TABLE>

B-8
<PAGE>

<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address* Age with Registrant During Past 5 Years
- --------------------- ----- ---------------------------------- -------------------------------------------------------------------
<S> <C> <C> <C>
John J. McCormack** 54 Trustee and Executive Vice Executive Vice President, TIAA and CREF, since November 1983
President and President, TIAA-CREF Enterprises, since June 1998
Richard L. Gibbs 52 Executive Vice President Executive Vice President, TIAA, CREF, TIAA-CREF Investment
Management, LLC ("Investment Management") and TIAA-CREF
Individual & Institutional Services, Inc. ("Services"), since 1993
Peter C. Clapman 63 Senior Vice President, Secretary Senior Vice President and Chief Counsel, Investments, TIAA and CREF
and Chief Counsel,
Investments
Richard J. Adamski 57 Vice President and Treasurer Vice President and Treasurer, Investment Management and Services,
since January 1992 and TPIS, since 1994, and Vice President and
Treasurer, TIAA and CREF
</TABLE>

* The address for all officers of the TIAA-CREF Life Funds is 730 Third
Avenue, New York, New York 10017-3206.
** This Trustee is or may be an "interested person" within the meaning of the
Investment Company Act of 1940.
- --------------------------------------------------------------------------------

Compensation of Trustees

Trustees who are not active officers of Teachers Insurance and Annuity
Association (TIAA) each receive a total of $5,000 per year, plus $1,000 for
each meeting of the Board of Trustees attended, for their service to both the
TIAA-CREF Life Funds and TIAA Separate Account VA-1 (the "Fund Complex").
Compensation is allocated between the companies in the Fund Complex based on
assets. Trustees who are active officers of TIAA do not receive any additional
compensation for their services as trustees. (See "Advisors and TIAA" below).
The following table sets forth the compensation paid to the TIAA-CREF Life
Funds' trustees for the year ended December 31, 1998:

<TABLE>
<CAPTION>
(3)
Pension or
(2) Retirement (4) (5)
(1) Aggregate Benefits Estimated Total
Name of Compensation Accrued As Annual Compensation
Person, From TIAA-CREF Part of Fund Benefits Upon From Fund
Position Life Funds Expenses Retirement Complex**
- --------------------- ---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Laurence W. Franz, $ 21.50 $-0- $ -0- $6,750
Trustee
Jeanmarie C. Grisi, $ -0-* $-0- $ -0-* $ -0-
Trustee
Richard M. Norman, $ 21.50 $-0- $ -0- $6,750
Trustee
</TABLE>

* Ms. Grisi has declined to accept compensation for her services.
** For purposes of this information, the Fund Complex consists of the TIAA-CREF
Life Funds and TIAA Separate Account VA-1.
- --------------------------------------------------------------------------------

Control Persons

Teachers Insurance and Annuity Association (TIAA), as the contributor of the
initial capital for the TIAA-CREF Life Funds, owned 99.6% of the shares of the
fund as of December 31, 1998.

Investment Advisory and Other Services

Investment Advisory Services
As explained in the prospectus, investment advisory services and related
services for the TIAA-CREF Life Funds are provided by personnel of Advisors,
which is registered under the Investment Advisers Act of 1940. Advisors manages
the investment and reinvestment of the assets of the TIAA-CREF Life Funds,
subject to the direction and control of the TIAA-CREF Life Funds' Board of
Trustees. Advisors' will perform all research, make recommendations, and place
orders for the purchase and sale of securities. Advisors also provides for
portfolio accounting, custodial, and related services for the assets of the
TIAA-CREF Life Funds.

As described in the prospectus, the investment management agreement between
Advisors and the TIAA-CREF Life Funds provides for payment of an investment
advisory fee of 0.30% of net assets annually for managing the Stock Index Fund.
Currently, with Advisors waiving a portion of that fee, a daily deduction from
the net assets of the Stock Index Fund is made at an annual rate of 0.07% for
expenses related to the management of the assets of the Stock Index Fund.

B-9
<PAGE>

Advisors and TIAA
Advisors is a wholly-owned indirect subsidiary of TIAA. The main offices of
both TIAA and Advisors are at 730 Third Avenue, New York, New York 10017-3206.
TIAA is a stock life insurance company, organized under the laws of New York
State. It was founded on March 4, 1918, by the Carnegie Foundation for the
Advancement of Teaching. TIAA is the companion organization of the College
Retirement Equities Fund (CREF), the first company in the United States to
issue a variable annuity. Together, TIAA and CREF form the principal retirement
system for the nation's education and research communities and the largest
retirement system in the world, based on assets under management. TIAA-CREF
serves approximately 2.1 million people. As of December 31, 1998, TIAA's assets
were approximately $102 billion; the combined assets for TIAA and CREF totalled
approximately $248 billion.

TIAA holds all of the shares of TIAA-CREF Enterprises, Inc., which in turn
holds all the shares of Advisors, TIAA-CREF Life Insurance Company, and
Teachers Personal Investors Services, Inc., the principal underwriter for the
TIAA-CREF Life Funds and the TIAA-CREF Life Insurance Company variable annuity
contracts funded by the TIAA-CREF Life Funds. TIAA also holds all the shares of
TIAA-CREF Investment Management, LLC ("Investment Management"). Investment
Management provides investment advisory services to the College Retirement
Equities Fund, TIAA's companion organization. All of the foregoing are
affiliates of the TIAA-CREF Life Funds and Advisors.

Custodian
The custodian for the assets of the fund is State Street Bank & Trust Company
("State Street"), 225 Franklin Street, Boston, Massachusetts 02209.

Administrative Services
Teachers Advisors has retained State Street to provide the TIAA-CREF Life Funds
with certain administrative services, including preparation of each fund's
federal, state and local tax returns, preparation of fund financial
information, and various other administrative services. Advisors, not the
TIAA-CREF Life Funds, has agreed to pay State Street a fee for such services.

Auditors
The financial statements of TIAA-CREF Life Funds are audited by Ernst & Young
LLP. The principal business address of Ernst & Young LLP is 787 Seventh Avenue,
New York, New York 10019.

Fund History and Description of the Fund
TIAA-CREF Life Funds is a Delaware business trust organized on August 13, 1998,
and is registered with the U.S. Securities and Exchange Commission (SEC) as a
diversified "open-end" management investment company. It currently has only one
investment portfolio, the Stock Index Fund (fund). As a Delaware business
trust, the fund's operations are governed by its Declaration of Trust dated
August 13, 1998, as amended (the Declaration). A copy of the fund's Certificate
of Trust, dated August 13, 1998, is on file with the Office of the Secretary of
State of the State of Delaware.

Shareholders Meetings and Voting Rights
Under the Declaration, the TIAA-CREF Life Funds are not required to hold annual
meetings to elect Trustees or for other purposes, and therefore, we do not
anticipate that the fund will hold shareholders' meetings unless required by
law. The TIAA-CREF Life Funds will be required to hold a meeting to elect
Trustees to fill any existing vacancies on the Board if, at any time, fewer
than a majority of the Trustees have been elected by the shareholders of the
TIAA-CREF Life Funds.

With regard to matters for which the Investment Company Act of 1940 requires a
shareholder vote, the separate account which issues the variable contracts
funded by the TIAA-CREF Life Funds, as the legal owner of the TIAA-CREF Life
Funds shares, typically votes fund shares in accordance with instructions
received from contractowners (or annuitants or beneficiaries thereunder) having
a voting interest in the separate account. Shares held by the separate account
for which no instructions are received are generally voted by the separate
account for or against any proposition, or in abstention, in the same
proportion as the shares for which instructions have been received. You should
refer to the separate prospectus, which accompanies this prospectus, describing
your contract and the separate account, for more information on your voting
rights.

Shares
The fund is authorized to issue an unlimited number of shares of beneficial
interest in the fund, all without par value. Shares are divided into and may be
issued in a designated series representing beneficial interests in one of the
fund's investment portfolios. There is currently one series of shares and one
investment portfolio.

Each share of a series issued and outstanding is entitled to participate
equally in dividends and distributions declared by such series and, upon
liquidation or dissolution, in net assets allocated to such series remaining
after satisfaction of outstanding liabilities. The shares of each series, when
issued, will be fully paid and non-assessable and have no preemptive or
conversion rights.

Each share (including fractional shares) is entitled to one vote for each
dollar of net asset value represented by the share on all matters to which the
holder of that share is entitled to vote. The shares do not have cumulative
voting rights.

TIAA provided the initial capital for the fund by purchasing $25 million of
shares of the Stock Index Fund. A separate account of TIAA-CREF Life Insurance
Company invested an additional $100,000 in the fund. Such shares were acquired
for investment and can only be disposed of by redemption.

B-10
<PAGE>

Additional Portfolios
The TIAA-CREF Life Funds currently consists of a single investment portfolio,
or fund. Pursuant to the Declaration, the Trustees may establish additional
investment funds (technically "series" of shares).

Valuation of Assets

The assets of the TIAA-CREF Life Funds are valued as of the close of each
valuation day in the following manner:

Equity Securities
Investments for which market quotations are readily available are valued at the
market value of such investments, determined as follows:

Equity securities listed or traded on the New York Stock Exchange or the
American Stock Exchange are valued based on their last sale price on such
exchange on the date of valuation, or at the mean of the closing bid and asked
prices if no sale is reported. Equity securities which are listed or traded on
any other exchange are valued in a comparable manner on the principal exchange
where traded.

Equity securities traded in the United States over-the-counter market are
valued based on the last sale price on the date of valuation for NASDAQ
National Market System securities, or at the mean of the closing bid and asked
prices if no sale is reported. Other U.S. over-the-counter equity securities
are valued at the mean of the closing bid and asked prices.

Equity securities may be valued at fair value as determined in good faith under
the direction of the Board of Trustees if events materially affecting the value
of an investment (as determined in our sole discretion) occur between the time
when its price is determined and the time the fund's net asset value is
calculated.

Money Market Instruments
Money market instruments for which market quotations are readily available are
valued based on the most recent bid price or the equivalent quoted yield for
such securities (or those of comparable maturity, quality, and type). Values
for money market instruments will be obtained either from one or more of the
major market makers or from one or more of the financial information services
for the securities to be valued.

Options
Portfolio investments underlying options are valued as described above. Stock
options written by the fund are valued at the last quoted sale price, or at the
closing bid price if no sale is reported for the day of valuation as determined
on the principal exchange on which the option is traded. The value of the
fund's net assets will be increased or decreased by the difference between the
premiums received on writing options and the costs of liquidating such
positions measured by the closing price of the options on the date of
valuation.

For example, when the fund writes a call option, the amount of the premium is
included in the fund's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value
of the call. Thus, if the current market value of the call exceeds the premium
received, the excess would be unrealized depreciation; conversely, if the
premium exceeds the current market value, such excess would be unrealized
appreciation. If a call expires or if the fund enters into a closing purchase
transaction it realizes a gain (or a loss if the cost of the transaction
exceeds the premium received when the call was written) without regard to any
unrealized appreciation or depreciation in the underlying securities, and the
liability related to such call is extinguished. If a call is exercised, the
fund realizes a gain or loss from the sale of the underlying securities and the
proceeds of the sale increased by the premium originally received.

A premium paid on the purchase of a put will be deducted from the fund's assets
and an equal amount will be included as an investment and subsequently adjusted
to the current market value of the put. For example, if the current market
value of the put exceeds the premium paid, the excess would be unrealized
appreciation; conversely, if the premium exceeds the current market value, such
excess would be unrealized depreciation.

Stock and bond index futures, and options thereon, which are traded on
commodities exchanges, are valued at their last sale prices as of the close of
such commodities exchanges.

Investments for Which Market Quotations Are Not Readily Available
Portfolio securities or other assets for which market quotations are not
readily available will be valued at fair value as determined in good faith
under the direction of the Board of Trustees.

Brokerage Allocation

Advisors is responsible for decisions to buy and sell securities for the fund
as well as for selecting brokers and, where applicable, negotiating the amount
of the commission rate paid. It is the intention of Advisors to place brokerage
orders with the objective of obtaining the best execution, which includes such
factors as best price, research and available data. When purchasing or selling
securities traded on the over-the-counter market, Advisors generally will
execute the transactions with a broker engaged in making a market for such
securities. When Advisors deems the purchase or sale of a security to be in the
best interests of the fund, its personnel may, consistent with their fiduciary
obligations, decide either to buy or to sell a particular security for the fund
at the same time as for TIAA Separate Account VA-1, TIAA-CREF Mutual Funds or
any other investment account that it may be managing, or at the same time as
for a CREF account or other account that it may also be managing on behalf of
Investment Management, the other investment adviser affiliated with TIAA. In
that event, allocation of the securities purchased or sold, as well as the
expenses incurred in the transaction, will be made in an equitable manner.

B-11
<PAGE>

Domestic brokerage commissions are negotiated, as there are no standard rates.
All brokerage firms provide the service of execution of the order made; some
brokerage firms also provide research and statistical data, and research
reports on particular companies and industries are customarily provided by
brokerage firms to large investors. In negotiating commissions, consideration
is given by Advisors to the quality of execution provided and to the use and
value of the data. The valuation of such data may be judged with reference to a
particular order or, alternatively, may be judged in terms of its value to the
overall management of the portfolio.

Advisors will place orders with brokers providing useful research and
statistical data services if reasonable commissions can be negotiated for the
total services furnished even though lower commissions may be available from
brokers not providing such services. Advisors follows guidelines established by
the Board for the placing of orders with the brokers providing such services.

Research or services obtained for the fund may be used by personnel of Advisors
in managing other investment company accounts, or the CREF accounts for
Investment Management. In such circumstances, the expenses incurred will be
allocated in an equitable manner consistent with the fiduciary obligations of
personnel of Advisors to the fund.

Performance Information

From time to time, we will advertise the total return and average annual total
return of the fund. Total return is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income and
principal changes for a specified period and dividing by the net asset value
per share at the beginning of the period. Advertisements may include the
percentage rate of total return or may include the value of a hypothetical
investment at the end of the period, which assumes the application of the
percentage rate of total return.

Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the fund was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a percentage rate
which, if applied on a compounded annual basis, would result in the redeemable
value of the investment at the end of the period. Advertisements of the fund's
performance will include the fund's average annual total return for one-, five-
and ten-year periods (and occasionally other periods as well).

All performance figures are based on past investment results. They aren't a
guarantee that the fund will perform equally or similarly in the future. Write
or call us for current performance figures for the fund.

Calculation of Performance Data
We may quote the fund's performance in various ways. All performance
information in advertising is historical and is not intended to indicate future
returns. The fund's share price, yield, and total return fluctuate in response
to market conditions and other factors, and the value of fund shares when
redeemed may be more or less than their original cost. Performance of the fund
will be presented net of any separate account fees and charges.

Total Return Calculations
Total returns quoted in advertising reflect all aspects of the fund's returns,
including the effect of reinvesting dividends and capital gain distributions,
and any change in the fund's NAV over a stated period. Average annual returns
are calculated by determining the growth or decline in value of a hypothetical
historical investment in the fund over a stated period, and then calculating
the annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over the
period according to the following formula:

P(1 + T)n = ERV
where: P = the hypothetical initial payment
T = average annual total return
n = number of years in the period
ERV = ending redeemable value of the hypothetical payment made
at the beginning of the one-, five-, or 10-year period at
the end of the one-, five-, or 10-year period (or
fractional portion thereof).

For example, a cumulative return of 100% over ten years would produce an
average annual return of 7.18%, which is the steady annual rate that would
equal 100% growth on a compounded basis in ten years. While average annual
returns are a convenient means of comparing investment alternatives, investors
should realize that the fund's performance is not constant over time, but
changes from year to year, and that average annual returns represent averaged
figures as opposed to the actual year-to-year performance of the fund.

In addition to average annual returns, we may quote the fund's unaveraged or
cumulative total returns reflecting the actual change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, or a series of redemptions, over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before or after tax basis. Total
returns, yields, and other performance information may be quoted numerically or
in a table, graph, or similar illustration.

B-12
<PAGE>

Performance Comparisons
Performance information for the fund may be compared in advertisements, sales
literature, and reports to Shareholders, to the performance information
reported by other investments and to various indices and averages. Such
comparisons may be made with, but are not limited to (1) Frank Russell Co. Inc.
indices, (2) the S&P 500, (3) the Dow Jones Industrial Average ("DJIA"), (4)
Lipper Analytical Services, Inc. Mutual Fund Performance Analysis Reports and
the Lipper General Equity Funds Average, (5) Money Magazine Fund Watch, (6)
Business Week's Mutual Fund Scoreboard, (7) SEI Funds Evaluation Services
Equity Fund Report, (8) CDA Mutual Funds Performance Review and CDA Growth
Mutual Fund Performance Index, (9) Value Line Composite Average (geometric),
(10) Wilshire Associates indices, (11) the Consumer Price Index, published by
the U.S. Bureau of Labor Statistics (measurement of inflation), (12)
Morningstar, Inc., and (13) VARDS. We may also discuss ratings or rankings
received from these entities, accompanied in some cases by an explanation of
those ratings or rankings, when applicable. In addition, advertisements may
discuss the performance of the indices listed above.

The performance of the fund also may be compared to other indices or averages
that measure performance of a pertinent group of securities. You should keep in
mind that the composition of the investments in the reported averages will not
be identical to that of the fund and that certain formula calculations (e.g.,
yield) may differ from index to index. In addition, there can be no assurance
that any of the funds will continue its performance as compared to such
indices.

We may also advertise ratings or rankings the fund receives from various rating
services and organizations, including but not limited to any organization
listed above.

The fund is not promoted, sponsored, endorsed, or sold by, nor affiliated with,
Frank Russell Company. Frank Russell Company is not responsible for and has not
reviewed the fund literature or publications and makes no representation or
warranty, express or implied, as to their accuracy, completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice, to
change or terminate the Russell 3000 Index. Frank Russell Company has no
obligation to take the needs of the fund or the separate account contractowners
into consideration in determining the index. Frank Russell Company's
publication of the Russell 3000 Index in no way suggests or implies an opinion
by Frank Russell Company as to the attractiveness or appropriateness of
investment in any or all of the securities upon which the Index is based. Frank
Russell Company makes no representation, warranty, or guarantee as to the
accuracy, completeness or reliability of the Index or any data included in the
Index. Frank Russell Company makes no representation or warranty regarding the
use, or the results of use, of the Index or any securities comprising the
Index. FRANK RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY KIND OR
NATURE, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA OR
SECURITIES INCLUDED THEREIN.

Illustrating Compounding, Tax Deferral, and Expense Deductions
We may illustrate in advertisements, sales literature, and reports to
contractowners or annuitants the effects of tax deferral and/or compounding of
earnings on an investment in the TIAA-CREF Life Funds. We may do this using a
hypothetical investment earning a specified rate of return. To illustrate the
effects of compounding, we would show how the total return from an investment
of the same dollar amount, earning the same or different interest rate, varies
depending on when the investment was made. To illustrate the effects of tax
deferral, we will show how the total return from an investment of the same
dollar amount, earning the same or different interest rates, for individuals in
the same tax bracket, would vary between tax-deferred and taxable investments.

We may also illustrate in advertisements, sales literature, and reports to
contractowners or annuitants the effect of an investment fund's expenses on
total return over time. We may do this using a hypothetical investment earning
a specified rate of return. We would show how the total return, net of
expenses, from an investment of the same dollar amount in funds with the same
investment results but different expense deductions varies increasingly over
time. In the alternative, we would show the difference in the dollar amount of
total expense charges paid over time by an investor in two or more different
funds that have the same annual total return but different asset-based expense
charges. We may also compare the TIAA-CREF Life Funds' expense charges to those
of other investment products.

Net Asset Value
Charts and graphs using the fund's NAVs, adjusted NAVs, and benchmark indices
may be used to exhibit performance. An adjusted NAV includes any distributions
paid by the fund and reflects all elements of its return.

Moving Averages
We may illustrate the fund's performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV for a
specified period. A short-term moving average is the average of each day's
adjusted closing NAV for a specified period. "Moving Average Activity
Indicators" combine adjusted closing NAVs from the last business day of each
week with moving averages for a specified period to produce indicators showing
when an NAV has crossed, stayed above, or stayed below its moving average.

Tax Status

Although the TIAA-CREF Life Funds are organized as a Delaware business trust,
neither the TIAA-CREF Life Funds nor the fund will be subject to any corporate
excise or franchise tax in the State of Delaware, nor will it be liable for
Delaware income taxes provided that the fund and any additional fund added
qualifies as a "regulated investment company" ("RIC") for federal income tax
purposes and satisfies certain income source requirements of Delaware law.

B-13
<PAGE>

If the fund or any additional fund so qualifies and distributes all of its
income and capital gains, it will also be exempt from the New York State
franchise tax and the New York City general corporation tax, except for small
minimum taxes.

The fund intends to qualify as a RIC under Subchapter M of the Code. In
general, to qualify as a RIC: (a) at least 90% of the gross income of the fund
for the taxable year must be derived from dividends, interest, payments with
respect to loans of securities, gains from the sale or other disposition of
securities, or other income derived with respect to its business of investing
in securities; (b) the fund must distribute to its shareholders 90% of its
ordinary income and net short-term capital gains; and (c) the fund must
diversify its assets so that, at the close of each quarter of its taxable year,
(i) at least 50% of the fair market value of its total (gross) assets is
comprised of cash, cash items, U.S. Government securities, securities of other
regulated investment companies and other securities limited in respect of any
one issuer to no more than 5% of the fair market value of the fund's total
assets and 10% of the outstanding voting securities of such issuer and (ii) no
more than 25% of the fair market value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies) or of two or more issuers
controlled by the fund and engaged in the same, similar, or related trades or
businesses.

If the fund fails to qualify as a RIC, the fund will be subject to federal and
possibly state corporate taxes on its taxable income and gains (without any
deduction for its distributions to its shareholders) and distributions to its
shareholders will constitute ordinary income to the extent of the fund's
available earnings and profits. Owners of a variable annuity or other variable
insurance contracts invested in the fund might be taxed currently on the
investment earnings under their contracts and thereby lose the benefit of tax
deferral. This could also happen if the fund fails to comply with the
diversification requirements required of insurance company separate accounts
under the Code.

The fund must declare and distribute dividends equal to at least 98% of its
ordinary income (as of the twelve months ended December 31) and distributions
of at least 98% of its net capital gains (as of the twelve months ended October
31), in order to avoid a federal excise tax. The fund intends to make the
required distributions, but they cannot guarantee that they will do so.
Dividends attributable to the funds's ordinary income and capital gains
distributions are taxable as such to shareholders in the year in which they are
received except dividends declared in October, November or December and paid in
January. Dividends in the latter category are treated as paid on December 31.

This discussion of the tax treatment of the funds and their distributions is
based on the federal, Delaware and New York tax laws in effect as of the date
of this SAI. Contractowners should consult their tax advisers to determine the
tax treatment of an investment in the fund.

Underwriters
The shares of the TIAA-CREF Life Funds are offered continuously by Teachers
Personal Investors Services, Inc. (TPIS), which is registered with the SEC as a
broker-dealer and is a member of the NASD. TPIS may be considered the
"principal underwriter" for the shares of the fund. No commissions are paid in
connection with the distribution of the shares of the TIAA-CREF Life Funds. The
principal business address of TPIS is 730 Third Avenue, New York, New York
10017.

Legal Matters
All matters of applicable state law have been passed upon by Charles H. Stamm,
Executive Vice President and General Counsel of TIAA and CREF. Legal matters
relating to the federal securities laws have been passed upon by Sutherland
Asbill & Brennan LLP, Washington, D.C.

Experts
The financial statements of the TIAA-CREF Life Funds included in this Statement
of Additional Information have been audited by Ernst & Young LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

Other Information
This Statement of Additional Information and the Prospectus for the fund do not
contain all the information set forth in the registration statement and
exhibits relating thereto (including the Declaration of Trust), which the fund
has filed with the SEC, to which reference is hereby made.

Financial Statements
The financial statements of the TIAA-CREF Life Funds follow.

B-14
<PAGE>

TIAA-CREF LIFE FUNDS--STOCK INDEX FUND
INDEX TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1998

<TABLE>
<S> <C>
Page
----
TIAA-CREF Life Funds--Stock Index Fund:
Report of Management Responsibility ......... B-16
Report of Independent Auditors .............. B-17
Statement of Assets and Liabilities ......... B-18
Statement of Operations ..................... B-19
Statement of Changes in Net Assets .......... B-20
Financial Highlights ........................ B-21
Notes to Financial Statements ............... B-22
Statement of Investments .................... B-24
</TABLE>

B-15

<PAGE>

[TIAA-CREF logo]

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

REPORT OF MANAGEMENT RESPONSIBILITY

To the Shareholders of
the Stock Index Fund of TIAA-CREF Life Funds:

The accompanying financial statements of the Stock Index Fund of TIAA-CREF Life
Funds (the "Fund") are the responsibility of management. They have been
prepared in accordance with generally accepted accounting principles and have
been presented fairly and objectively in accordance with such principles.

The Fund has established and maintains a strong system of internal controls
designed to provide reasonable assurance that assets are properly safeguarded
and transactions are properly executed in accordance with management's
authorization, and to carry out the ongoing responsibilities of management for
reliable financial statements. In addition, the TIAA-CREF Life Insurance
Company's internal audit personnel provide a continuing review of the internal
controls and operations of the Account.

The accompanying financial statements have been audited by the independent
auditing firm of Ernst & Young LLP. The independent auditors' report, which
appears on the following page, expresses an independent opinion on these
financial statements.

The Fund's Board of Trustees, the majority of whom are not officers of
TIAA-CREF Life Insurance Company, meets regularly with management,
representatives of Ernst & Young LLP and internal audit personnel to review
matters relating to financial reporting, internal controls and auditing. In
addition to the annual audit of the financial statements of the Fund by the
independent auditing firm, the Securities and Exchange Commission performs
periodic examinations of the Fund's operations.

/s/ Thomas G. Walsh
---------------------------------
President
and Chief Executive Officer

/s/ Richard L. Gibbs
---------------------------------
Chief Financial Officer
and Executive Vice President

B-16
<PAGE>

Ernst & Young LLP 787 Seventh Avenue Telephone: (212) 773-3000
New York, NY 10019

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of
the Stock Index Fund of TIAA-CREF Life Funds:

We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of the Stock Index Fund of TIAA-CREF Life Funds
(the "Fund") as of December 31, 1998, and the related statements of operations
and changes in net assets and financial highlights for the period December 1,
1998 (commencement of operations) to December 31, 1998. These financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements 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 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. Our
procedures included confirmation of securities owned at December 31, 1998, 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Stock Index Fund of
TIAA-CREF Life Funds at December 31, 1998, and the results of its operations,
and the changes in its net assets and the financial highlights for the period
December 1, 1998 (commencement of operations) to December 31, 1998, in
conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

February 5, 1999

Ernst & Young LLP is a member of Ernst & Young International, Ltd.

B-17
<PAGE>

TIAA-CREF LIFE FUNDS STOCK INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
ASSETS
Investments, at cost ................................................. $ 25,140,357
Net unrealized appreciation of portfolio investments ................. 1,057,920
------------
Investments, at value ................................................ 26,198,277
Dividends and interest receivable .................................... 23,627
Receivable from securities transactions .............................. 42,243
------------
TOTAL ASSETS 26,264,147
------------
LIABILITIES
Amount due to bank ................................................... 6,734
Payable for securities transactions .................................. 43,618
Accrued expenses ..................................................... 1,498
------------
TOTAL LIABILITIES 51,850
------------
NET ASSETS ............................................................ $ 26,212,297
============
Net assets consist of:
Paid in capital ...................................................... 25,152,840
Accumulated undistributed net investment income ...................... 1,537
Accumulated net unrealized appreciation on investments ............... 1,057,920
------------
NET ASSETS ............................................................ $ 26,212,297
============
NUMBER OF SHARES OUTSTANDING, $.0001 par value,
unlimited number of shares of beneficial interest authorized ......... 1,006,046
============
NET ASSET VALUE PER SHARE ............................................. $ 26.05
============
</TABLE>

See notes to financial statements.

B-18
<PAGE>

TIAA-CREF LIFE FUNDS
STOCK INDEX FUND
STATEMENT OF OPERATIONS
For the Period December 1, 1998 (commencement of operations) to December 31,
1998

<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Interest ..................................................... $ 30,853
Dividends .................................................... 25,022
----------
TOTAL INCOME 55,875
----------
Expenses--Note 3:
Management fee ............................................... 6,224
Trustee fees and expenses .................................... 46
----------
EXPENSES BEFORE WAIVER 6,270
Less expenses waived by the advisor .......................... 4,772
----------
NET EXPENSES 1,498
----------
INVESTMENT INCOME--NET 54,377
----------
UNREALIZED GAIN ON INVESTMENTS--Note 4
Net change in unrealized appreciation on investments ......... 1,057,920
----------
NET UNREALIZED GAIN ON INVESTMENTS 1,057,920
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,112,297
==========
</TABLE>

See notes to financial statements.

B-19
<PAGE>

TIAA-CREF LIFE FUNDS
STOCK INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period December 1, 1998 (commencement of operations) to December 31,
1998

<TABLE>
<S> <C>
OPERATIONS
Investment income--net ........................................ $ 54,377
Net change in unrealized appreciation on investments .......... 1,057,920
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,112,297
-----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .................................... (52,840)
-----------
TOTAL DISTRIBUTIONS (52,840)
-----------
SHAREHOLDER TRANSACTIONS
Seed money subscriptions ...................................... 25,100,000
Reinvestment of distributions ................................. 52,840
-----------
NET INCREASE FROM SHAREHOLDER TRANSACTIONS 25,152,840
-----------
NET ASSETS $26,212,297
===========
CHANGE IN FUND SHARES
Shares sold ................................................... 1,004,000
Shares issued in reinvestment of distributions ................ 2,046
-----------
NET INCREASE IN SHARES OUTSTANDING 1,006,046
===========
</TABLE>

See notes to financial statements.

B-20
<PAGE>

TIAA-CREF LIFE FUNDS STOCK INDEX FUND
FINANCIAL HIGHLIGHTS
For the Period December 1, 1998 (commencement of operations) to December 31,
1998

<TABLE>
<S> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period .................................. $ 25.00
-------
Gain from investment operations:
Net investment income ................................................ 0.05
Net unrealized gain on investments ................................... 1.05
--------
Total gain from investment operations ................................. 1.10
--------
Distributions:
From net investment income ........................................... ( 0.05)
--------
Total distributions ................................................... ( 0.05)
--------
Net asset value, end of period ........................................ $ 26.05
========
TOTAL RETURN .......................................................... 4.41%

RATIOS AND SUPPLEMENTAL DATA
Net assets at end of period (in thousands) ............................ 26,212
Ratio of expenses to average net assets before expense waiver ......... 0.03%
Ratio of expense to average net assets after expense waiver ........... 0.01%
Ratio of net investment income to average net assets .................. 0.22%
Portfolio turnover rate ............................................... 0.00%
</TABLE>

The percentages shown above are not annualized.

See notes to financial statements.

B-21
<PAGE>

TIAA-CREF LIFE FUNDS
STOCK INDEX FUND
NOTES TO FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION
TIAA-CREF Life Funds is a Delaware business trust that was organized on August
13, 1998 and is registered with the Securities and Exchange Commission
("Commission") under the Investment Company Act of 1940 as an open-end
management investment company. It currently consists of one series, the Stock
Index Fund (the "Fund") which invests in a diversified portfolio selected to
track the overall market for common stocks publicly traded in the United
States, as represented by a broad stock market index. TIAA-CREF Life Separate
Account VA-1 (the "Account") which is registered with the Commission as a unit
investment trust under the 1940 Act invests in the Fund. The Account is a
separate account of TIAA-CREF Life Insurance Company ("TIAA-CREF Life") which
commenced operations as a legal reserve life insurance company under the
insurance laws of the State of New York on December 18, 1996, and is a
wholly-owned indirect subsidiary of Teachers Insurance and Annuity Association
of America ("TIAA"), also a legal reserve life insurance company which was
established under the insurance laws of the State of New York in 1918.

The Fund commenced operations on December 1, 1998 when the Account purchased
4,000 shares at $25 per share, for a total of $100,000 and TIAA purchased
1,000,000 shares at $25 per share, for a total of $25,000,000. At December 31,
1998, the Account owned 4,008 shares of the Fund, with a total value of
$104,412 and TIAA owned 1,002,038 shares of the Fund, with a total value of
$26,107,885.

Teachers Advisors, Inc. ("Advisors"), an indirect subsidiary of TIAA, which is
registered with the Commission as an investment adviser, provides investment
advisory services for the Fund pursuant to an Investment Management Agreement
between TIAA-CREF Life, Advisors and the Fund.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements may require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, income, expenses and related disclosures. Actual results may
differ from those estimates. The following is a summary of the significant
accounting policies consistently followed by the Fund, which are in conformity
with generally accepted accounting principles.

Valuation of Investments: Securities listed or traded on any United States
national securities exchange are valued at the last sales price as of the close
of the principal securities exchange on which such securities are traded or, if
there is no sale, at the mean of the last bid and asked prices on such
exchange. Securities traded only in the over-the-counter market and quoted in
the NASDAQ National Market System are valued at the last sales price, or at the
mean of the last bid and asked prices if no sale is reported. All other
over-the-counter securities are valued at the mean of the last bid and asked
prices. Short-term money market instruments are stated at market value.
Portfolio securities for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Board of Trustees.

Accounting for Investments: Securities transactions are accounted for as of the
date the securities are purchased or sold (trade date). Interest income is
recorded as earned and, for short-term money market instruments, includes
accrual of discount and amortization of premium. Dividend income is recorded on
the ex-dividend date. Realized gains and losses on security transactions are
accounted for on the specific identification basis.

Federal Income Taxes: The Fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code, and, as such, will not
be subject to federal income taxes to the extent that it distributes
substantially all taxable income each year.

NOTE 3--MANAGEMENT AGREEMENTS
Daily charges are deducted from the net assets of the Fund for investment
management services provided by Advisors. The Investment Management Agreement
sets the investment advisory fee at an annual rate of 0.30% of the net assets
of the Fund. Currently, Advisors has agreed to waive a portion of such fee, so
that the daily deduction is equivalent to an annual charge of 0.07% of the net
assets of the Fund.

B-22
<PAGE>

TIAA-CREF LIFE FUNDS
STOCK INDEX FUND
NOTES TO FINANCIAL STATEMENTS (Concluded)

NOTE 4--INVESTMENTS
At December 31, 1998, net unrealized appreciation of portfolio investments was
$1,057,920, consisting of gross unrealized appreciation of $1,388,414 and gross
unrealized depreciation of $330,494. These amounts are not materially different
from such amounts on a federal income tax basis.

Purchases of securities, other than short-term money market instruments, for
the period December 1, 1998 (commencement of operations) to December 31, 1998,
was $25,075,638. There were no sales of securities during the period.

NOTE 5--TRUSTEE FEES
The Fund pays its Trustees who are not also officers or affiliated persons of
the Fund, certain remuneration for their services, plus travel and other
expenses incurred in attending Board meetings. Trustees who are also officers
or affiliated persons receive no remuneration for their services as Trustees.

B-23
<PAGE>

TIAA-CREF LIFE FUND
STATEMENT OF INVESTMENTS--STOCK INDEX FUND
DECEMBER 31, 1998

SUMMARY BY INDUSTRY

<TABLE>
<CAPTION>
VALUE %
-------------------- ----------
<S> <C> <C>
COMMON STOCK
AGRICULTURAL PRODUCTION--CROPS ............. $ 8,100 0.03%
AMUSEMENT AND RECREATION SERVICES .......... 9,412 0.04
APPAREL AND ACCESSORY STORES ............... 142,443 0.54
APPAREL AND OTHER TEXTILE PRODUCTS ......... 23,725 0.09
AUTO REPAIR, SERVICES AND PARKING .......... 12,362 0.05
AUTOMOTIVE DEALERS AND SERVICE STATIONS 13,175 0.05
BUILDING MATERIALS AND GARDEN SUPPLIES ..... 296,318 1.13
BUSINESS SERVICES .......................... 1,840,557 7.02
CHEMICALS AND ALLIED PRODUCTS .............. 3,548,584 13.54
COMMUNICATIONS ............................. 2,943,031 11.23
DEPOSITORY INSTITUTIONS .................... 2,217,991 8.46
EATING AND DRINKING PLACES ................. 188,906 0.72
EDUCATIONAL SERVICES ....................... 15,275 0.06
ELECTRIC, GAS, AND SANITARY SERVICES ....... 1,100,408 4.20
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT 2,040,844 7.79
ENGINEERING AND MANAGEMENT SERVICES ........ 37,499 0.14
FABRICATED METAL PRODUCTS .................. 224,817 0.86
FOOD AND KINDRED PRODUCTS .................. 1,103,492 4.21
FOOD STORES ................................ 195,936 0.75
FURNITURE AND FIXTURES ..................... 35,630 0.14
FURNITURE AND HOMEFURNISHINGS STORES ....... 55,460 0.21
GENERAL BUILDING CONTRACTORS ............... 29,718 0.11
GENERAL MERCHANDISE STORES ................. 602,164 2.30
HEALTH SERVICES ............................ 123,117 0.47
HEAVY CONSTRUCTION, EXCEPT BUILDING ........ 2,637 0.01
HOLDING AND OTHER INVESTMENT OFFICES ....... 184,901 0.71
HOTELS AND OTHER LODGING PLACES ............ 30,297 0.12
INDUSTRIAL MACHINERY AND EQUIPMENT ......... 1,971,800 7.52
INSTRUMENTS AND RELATED PRODUCTS ........... 540,540 2.06
INSURANCE AGENTS, BROKERS AND SERVICE ...... 23,375 0.09
INSURANCE CARRIERS ......................... 1,314,359 5.01
LOCAL AND INTERURBAN PASSENGER TRANSIT 6,937 0.03
LUMBER AND WOOD PRODUCTS ................... 50,086 0.19
METAL MINING ............................... 26,162 0.10
MISCELLANEOUS MANUFACTURING
INDUSTRIES ................................ 19,262 0.07
MISCELLANEOUS RETAIL ....................... 288,372 1.10
MOTION PICTURES ............................ 167,725 0.64

</TABLE>
<TABLE>
<CAPTION>
VALUE %
-------------------- ----------
<S> <C> <C>
NONDEPOSITORY INSTITUTIONS ................. $ 609,510 2.33%
NONMETALLIC MINERALS, EXCEPT FUELS ......... 12,437 0.05
OIL AND GAS EXTRACTION ..................... 107,166 0.41
PAPER AND ALLIED PRODUCTS .................. 230,374 0.88
PERSONAL SERVICES .......................... 39,699 0.15
PETROLEUM AND COAL PRODUCTS ................ 1,150,860 4.39
PRIMARY METAL INDUSTRIES ................... 81,804 0.31
PRINTING AND PUBLISHING .................... 335,690 1.28
RAILROAD TRANSPORTATION .................... 107,650 0.41
REAL ESTATE ................................ 8,900 0.03
RUBBER AND MISCELLANEOUS PLASTIC
PRODUCTS .................................. 123,022 0.47
SECURITY AND COMMODITY BROKERS ............. 282,483 1.08
STONE, CLAY, AND GLASS PRODUCTS ............ 31,268 0.12
TEXTILE MILL PRODUCTS ...................... 11,568 0.04
TOBACCO PRODUCTS ........................... 350,675 1.34
TRANSPORTATION BY AIR ...................... 127,505 0.49
TRANSPORTATION EQUIPMENT ................... 809,887 3.09
TRANSPORTATION SERVICES .................... 32,550 0.12
TRUCKING AND WAREHOUSING ................... 2,912 0.01
WATER TRANSPORTATION ....................... 11,606 0.04
WHOLESALE TRADE-DURABLE GOODS .............. 35,680 0.13
WHOLESALE TRADE-NONDURABLE GOODS ........... 152,652 0.58
----------- ------
TOTAL COMMON STOCK
(Cost $25,033,395) ......................... 26,091,315 99.54
----------- ------
SHORT TERM INVESTMENT
U.S. GOVERNMENT AGENCY ...................... 106,962 0.41
----------- ------
TOTAL SHORT TERM INVESTMENT
(Cost $106,962) ............................ 106,962 0.41
----------- ------
TOTAL PORTFOLIO
(Cost $25,140,357) ......................... 26,198,277 99.95
OTHER ASSETS & LIABILITIES, NET ............. 14,020 0.05
----------- ------
NET ASSETS .................................. $26,212,297 100.00%
=========== ======
</TABLE>

See notes to financial statements.
B-24
<PAGE>

TIAA-CREF LIFE FUND
STATEMENT OF INVESTMENTS--STOCK INDEX FUND
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------- -----------------
<S> <C> <C>
COMMON STOCK--99.54%
AGRICULTURAL PRODUCTION-CROPS--0.03%
300 PIONEER-HI-BRED INTERNATIONAL, INC ........... $ 8,100
------------
AMUSEMENT AND RECREATION SERVICES--0.04%
600 o HARRAH'S ENTERTAINMENT, INC .................. 9,412
------------
APPAREL AND ACCESSORY STORES--0.54%
200 o ABERCROMBIE & FITCH CO (CLASS A) ............. 14,150
200 o ANN TAYLOR STORES CORP ....................... 7,887
1,300 GAP, INC ..................................... 73,125
300 NORDSTROM, INC ............................... 10,406
200 ROSS STORES, INC ............................. 7,875
1,000 TJX COS, INC ................................. 29,000
------------
142,443
------------
APPAREL AND OTHER TEXTILE PRODUCTS--0.09%
400 o FRUIT OF THE LOOM, INC (CLASS A) ............. 5,525
400 o JONES APPAREL GROUP, INC ..................... 8,825
200 VF CORP ...................................... 9,375
------------
23,725
------------
AUTO REPAIR, SERVICES AND PARKING--0.05%
100 HERTZ CORP (CLASS A) ......................... 4,562
300 RYDER SYSTEM, INC ............................ 7,800
------------
12,362
------------
AUTOMOTIVE DEALERS AND SERVICE STATIONS--0.05%
400 AUTOZONE, INC ................................ 13,175
------------
BUILDING MATERIALS AND GARDEN SUPPLIES--1.13%
200 o EAGLE HARDWARE & GARDEN, INC ................. 6,500
3,900 HOME DEPOT, INC .............................. 238,631
1,000 LOWES COS, INC ............................... 51,187
------------
296,318
------------
BUSINESS SERVICES--7.02%
300 o ACNEILSEN CORP ............................... 8,475
100 o ACXIOM CORP .................................. 3,100
1,300 AMERICA ONLINE, INC .......................... 208,000
200 o AMERICAN MANAGEMENT SYSTEMS, INC ............. 8,000
600 o ASCEND COMMUNICATIONS, INC ................... 39,450
200 AUTODESK, INC ................................ 8,537
600 AUTOMATIC DATA PROCESSING, INC ............... 48,112
600 o BMC SOFTWARE, INC ............................ 26,737
300 o CADENCE DESIGN SYSTEMS, INC .................. 8,925
100 o CHOICEPOINT, INC ............................. 6,450
100 o CITRIX SYSTEMS, INC .......................... 9,706
100 o CMGI, INC .................................... 10,650
1,300 COMPUTER ASSOCIATES INTERNATIONAL, INC 55,412
100 o COMPUTER HORIZONS CORP ....................... 2,662
300 o COMPUTER SCIENCES CORP ....................... 19,331
500 COMPUWARE CORP ............................... 39,062
100 CSG SYSTEMS INTERNATIONAL, INC ............... 7,900
124 o DST SYSTEMS, INC ............................. 7,075
1,000 ELECTRONIC DATA SYSTEMS CORP ................. 50,250
300 o ELECTRONICS FOR IMAGING, INC ................. 12,056
300 EQUIFAX, INC ................................. 10,256
1,500 FIRST DATA CORP .............................. 47,531
300 o GTECH HOLDINGS CORP .......................... 7,687
1,500 HBO & CO ..................................... 43,031
300 o INTERIM SERVICES, INC ........................ 7,012
100 o INTERNATIONAL NETWORK SERVICES ............... 6,650
300 INTERPUBLIC GROUP OF COS, INC ................ 23,925
100 o INTUIT, INC .................................. 7,250
300 o J.D. EDWARDS & CO ............................ 8,512
300 o KEANE, INC ................................... 11,981
400 o LEARNING CO, INC ............................. 10,375

</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------- -----------------
<S> <C> <C>
100 o LYCOS, INC ................................... $ 5,556
400 MANPOWER, INC ................................ 10,075
200 o MEDQUIST, INC ................................ 7,900
100 o METAMOR WORLDWIDE, INC ....................... 2,500
4,500 o MICROSOFT CORP ............................... 624,093
100 o MINDSPRING ENTERPRISES, INC .................. 6,106
200 o NETWORKS ASSOCIATES, INC ..................... 13,250
400 NIELSEN MEDIA RESEARCH ....................... 7,200
900 o NOVELL, INC .................................. 16,312
300 OMNICOM GROUP, INC ........................... 17,400
2,200 o ORACLE CORP .................................. 94,875
800 o PARAMETRIC TECHNOLOGY CORP ................... 13,100
500 PAYCHEX, INC ................................. 25,718
400 o PLATINUM TECHNOLOGY, INC ..................... 7,650
200 o POLICY MANAGEMENT SYSTEMS CORP ............... 10,100
400 o RATIONAL SOFTWARE CORP ....................... 10,600
400 o ROBERT HALF INTERNATIONAL, INC ............... 17,875
100 SEI INVESTMENT CO ............................ 9,937
300 o SIEBEL SYSTEMS, INC .......................... 10,181
200 o SNYDER COMMUNICATIONS, INC ................... 6,750
200 o STRUCTURAL DYNAMICS RESEARCH CORP ............ 3,975
900 o SUN MICROSYSTEMS, INC ........................ 77,062
300 TRUE NORTH COMMUNICATIONS, INC ............... 8,062
200 o VALASSIS COMMUNICATIONS, INC ................. 10,325
100 o VERITAS SOFTWARE CORP ........................ 5,993
200 o YAHOO, INC ................................... 47,387
200 o YOUNG & RUBICAM, INC ......................... 6,475
------------
1,840,557
------------
CHEMICALS AND ALLIED PRODUCTS--13.54%
3,900 ABBOTT LABORATORIES CO ....................... 191,100
200 o AGOURON PHARMACEUTICALS, INC ................. 11,750
900 AIR PRODUCTS & CHEMICALS, INC ................ 36,000
300 ALBERTO CULVER CO (CLASS B) .................. 8,006
100 ALLERGAN, INC ................................ 6,475
200 ALPHARMA, INC (CLASS A) ...................... 7,062
3,000 AMERICAN HOME PRODUCTS CORP .................. 168,937
800 o AMGEN, INC ................................... 83,650
200 AVON PRODUCTS, INC ........................... 8,850
300 o BIOGEN, INC .................................. 24,900
2,400 BRISTOL MYERS SQUIBB CO ...................... 321,150
300 o CENTOCOR, INC ................................ 13,537
200 CLOROX CO .................................... 23,362
600 COLGATE PALMOLIVE CO ......................... 55,725
400 CROMPTON & KNOWLES CORP ...................... 8,275
600 DOW CHEMICAL CO .............................. 54,562
2,700 DU PONT (E.I.) DE NEMOURS & CO ............... 143,268
100 EASTMAN CHEMICAL CO .......................... 4,475
100 o FMC CORP ..................................... 5,600
700 HERCULES, INC ................................ 19,162
100 o ICOS CORP .................................... 2,975
200 o IDEC PHARMACEUTICALS CORP .................... 9,400
100 o IMMUNEX CORP ................................. 12,581
200 INTERNATIONAL FLAVORS & FRAGRANCES, INC ...... 8,837
600 o IVAX CORP .................................... 7,462
3,400 JOHNSON & JOHNSON CO ......................... 285,175
200 JONES PHARMACEUTICAL, INC .................... 7,300
300 LAUDER (ESTEE) CO (CLASS A) .................. 25,650
2,400 LILLY (ELI) & CO ............................. 213,300
300 LUBRIZOL CORP ................................ 7,706
400 MALLINCKRODT, INC ............................ 12,325
100 o MEDIMMUNE, INC ............................... 9,943
2,900 MERCK & CO, INC .............................. 428,293
</TABLE>

See notes to financial statements.
B-25
<PAGE>

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------- -----------------
<S> <C> <C>
CHEMICALS AND ALLIED PRODUCTS--(Continued)
400 MILLENNIUM CHEMICAL, INC .......................... $ 7,950
1,200 MONSANTO CO ....................................... 57,000
700 MORTON INTERNATIONAL, INC ......................... 17,150
700 MYLAN LABORATORIES, INC ........................... 22,050
200 OLIN CORP ......................................... 5,662
3,100 PFIZER, INC ....................................... 388,856
1,000 PHARMACIA & UPJOHN, INC ........................... 56,625
500 PPG INDUSTRIES, INC ............................... 29,125
500 PRAXAIR, INC ...................................... 17,625
3,400 PROCTER & GAMBLE CO ............................... 310,462
600 ROHM & HAAS CO .................................... 18,075
3,500 SCHERING-PLOUGH CORP .............................. 193,375
300 SCHULMAN (A.), INC ................................ 6,806
300 SHERWIN-WILLIAMS CO ............................... 8,812
400 SIGMA ALDRICH CORP ................................ 11,750
2,100 WARNER-LAMBERT CO ................................. 157,893
200 o WATSON PHARMACEUTICALS, INC ....................... 12,575
-----------
3,548,584
-----------
COMMUNICATIONS--11.23%
200 o ADELPHIA COMMUNICATIONS CORP
(CLASS A) ......................................... 9,150
1,400 o AIRTOUCH COMMUNICATIONS, INC ...................... 100,975
200 ALIANT COMMUNICATIONS, INC ........................ 8,175
500 ALLTEL CORP ....................................... 29,906
2,600 AMERITECH CORP .................................... 164,775
100 o ASSOCIATED GROUP, INC (CLASS A) ................... 4,300
4,500 AT & T CORP ....................................... 338,625
4,100 BELL ATLANTIC CORP ................................ 217,300
5,000 BELLSOUTH CORP .................................... 249,375
400 o CABLEVISION SYSTEMS CORP (CLASS A) ................ 20,075
2,000 CBS CORP .......................................... 65,500
200 CENTURY TELEPHONE ENTERPRISES, INC ................ 13,500
300 CINCINNATI BELL, INC .............................. 11,343
200 o CLEAR CHANNEL COMMUNICATIONS, INC ................. 10,900
900 COMCAST CORP (CLASS A) SPECIAL .................... 52,818
100 o EXODUS COMMUNICATIONS, INC ........................ 6,425
2,600 GTE CORP .......................................... 169,000
300 o HEARST-ARGYLE TELEVISION, INC ..................... 9,900
200 o HEFTEL BROADCASTING CORP (CLASS A) ................ 9,850
300 o ICG COMMUNICATIONS, INC ........................... 6,450
1,100 o LEVEL 3 COMMUNICATIONS, INC ....................... 47,437
600 o LIBERTY MEDIA GROUP (CLASS A) ..................... 27,637
3,100 LUCENT TECHNOLOGIES, INC .......................... 341,000
4,400 o MCI WORLDCOM, INC ................................. 315,700
300 o MCLEODUSA, INC (CLASS A) .......................... 9,375
1,100 o MEDIA ONE GROUP, INC .............................. 51,700
300 o NEXTLINK COMMUNICATIONS, INC ...................... 8,512
200 o NTL, INC .......................................... 11,287
4,900 SBC COMMUNICATIONS, INC ........................... 262,762
400 o SKYTEL COMMUNICATIONS, INC ........................ 8,850
700 SPRINT CORP (FON GROUP) ........................... 58,887
1,000 o SPRINT CORP (PCS GROUP) ........................... 23,125
1,000 o TELE-COMMUNICATIONS, INC (CLASS A) ................ 55,312
1,700 o TELECOM-TCI VENTURES GROUP (CLASS A) .............. 40,056
1,400 U.S. WEST, INC .................................... 90,475
300 o U.S.A. NETWORKS, INC .............................. 9,937
200 o UNIVISION COMMUNICATIONS, INC ..................... 7,237
900 o VIACOM, INC (CLASS B) ............................. 66,600
400 o WESTERN WIRELESS CORP (CLASS A) ................... 8,800
-----------
2,943,031
-----------
DEPOSITORY INSTITUTIONS--8.46%
200 AMSOUTH BANCORP ................................... 9,125
300 ASSOCIATED BANC-CORP .............................. 10,256
300 ASTORIA FINANCIAL CORP ............................ 13,725
300 BANCORPSOUTH, INC ................................. 5,418
200 BANCWEST CORP ..................................... 9,600

</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------- -----------------
<S> <C> <C>
1,600 BANK OF NEW YORK CO, INC .......................... $ 64,400
3,200 BANK ONE CORP ..................................... 163,400
4,100 BANKAMERICA CORP .................................. 246,512
800 BANKBOSTON CORP ................................... 31,150
300 BANKERS TRUST CORP ................................ 25,631
500 BB&T CORP ......................................... 20,156
100 CCB FINANCIAL CORP ................................ 5,700
2,300 CHASE MANHATTAN CORP .............................. 156,543
500 COMERICA, INC ..................................... 34,093
300 COMMUNITY FIRST BANKSHARES, INC ................... 6,318
400 COMPASS BANCSHARES, INC ........................... 15,225
100 CRESTAR FINANCIAL CORP ............................ 7,200
100 CULLEN FROST BANKERS, INC ......................... 5,487
600 DIME BANCORP, INC ................................. 15,862
200 F.N.B. CORP ....................................... 5,650
600 FIFTH THIRD BANCORP ............................... 42,787
500 FIRST AMERICAN CORP ............................... 22,187
400 FIRST SECURITY CORP ............................... 9,350
500 FIRST TENNESSEE NATIONAL CORP ..................... 19,031
2,500 FIRST UNION CORP .................................. 152,031
400 FIRSTAR CORP ...................................... 37,300
1,700 FLEET FINANCIAL GROUP, INC ........................ 75,968
200 FULTON FINANCIAL CORP ............................. 4,500
300 GOLDEN WEST FINANCIAL CORP ........................ 27,506
200 GREENPOINT FINANCIAL CORP ......................... 7,025
900 HIBERNIA CORP (CLASS A) ........................... 15,637
300 HUBCO, INC ........................................ 9,037
600 HUNTINGTON BANCSHARES, INC ........................ 18,037
1,600 KEYCORP ........................................... 51,200
2,200 MBNA CORP ......................................... 54,862
500 MELLON BANK CORP .................................. 34,375
600 MERCANTILE BANCORP, INC ........................... 27,675
400 MERCANTILE BANKSHARES CORP ........................ 15,400
300 MORGAN (J.P.) & CO, INC ........................... 31,518
1,000 NATIONAL CITY CORP ................................ 72,500
800 NORTH FORK BANCORP, INC ........................... 19,150
100 NORTHERN TRUST CORP ............................... 8,731
200 ONE VALLEY BANCORP, INC ........................... 6,575
400 PACIFIC CENTURY FINANCIAL CORP .................... 9,750
1,000 PNC BANK CORP ..................................... 54,125
200 POPULAR, INC ...................................... 6,800
600 PROVIDIAN FINANCIAL CORP .......................... 45,000
700 REGIONS FINANCIAL CORP ............................ 28,218
200 REPUBLIC NEW YORK CORP ............................ 9,112
200 o ROSLYN BANCORP, INC ............................... 4,300
700 SOUTHTRUST CORP ................................... 25,856
300 STATE STREET CORP ................................. 20,868
600 SUMMIT BANCORP .................................... 26,212
700 SUNTRUST BANKS, INC ............................... 53,550
300 TCF FINANCIAL CORP ................................ 7,256
200 TRUSTMARK CORP .................................... 4,525
1,400 U.S. BANCORP ...................................... 49,700
100 U.S. TRUST CORP ................................... 7,600
400 UNION PLANTERS CORP ............................... 18,125
300 UST CORP .......................................... 7,068
400 WACHOVIA CORP ..................................... 34,975
200 WASHINGTON FEDERAL, INC ........................... 5,337
1,100 WASHINGTON MUTUAL, INC ............................ 42,006
3,600 WELLS FARGO CO .................................... 143,775
-----------
2,217,991
-----------
EATING AND DRINKING PLACES--0.72%
300 BOB EVANS FARMS, INC .............................. 7,818
330 CKE RESTAURANTS, INC .............................. 9,714
800 DARDEN RESTAURANTS, INC ........................... 14,400
300 o FOODMAKER, INC .................................... 6,618
900 o HOST MARRIOTT CORP (NEW) .......................... 12,431
1,800 MCDONALD'S CORP ................................... 137,925
-----------
188,906
-----------
</TABLE>

See notes to financial statements.
B-26
<PAGE>

<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------ -----------------
<S> <C> <C>
EDUCATIONAL SERVICES--0.06%
200 o DEVRY, INC .................................... $ 6,125
300 o SYLVAN LEARNING SYSTEMS, INC .................. 9,150
-----------
15,275
-----------
ELECTRIC, GAS, AND SANITARY SERVICES--4.20%
300 AGL RESOURCES, INC ............................ 6,918
600 ALLEGHENY ENERGY, INC ......................... 20,700
500 o ALLIED WASTE INDUSTRIES, INC .................. 11,781
600 AMEREN CORP ................................... 25,612
700 AMERICAN ELECTRIC POWER CO, INC ............... 32,943
100 ATMOS ENERGY CORP ............................. 3,225
700 BALTIMORE GAS & ELECTRIC CO ................... 21,612
200 BEC ENERGY .................................... 8,237
600 BROWNING FERRIS INDUSTRIES, INC ............... 17,062
300 CALENERGY, INC ................................ 10,406
100 CAROLINA POWER & LIGHT CO ..................... 4,706
900 CENTRAL & SOUTH WEST CORP ..................... 24,693
200 CENTRAL HUDSON GAS & ELECTRIC CORP ............ 8,950
700 CINERGY CORP .................................. 24,062
700 COASTAL CORP .................................. 24,456
400 COLUMBIA ENERGY GROUP ......................... 23,100
200 COMMONWEALTH ENERGY SYSTEM CO ................. 8,100
600 CONECTIV, INC ................................. 14,700
300 CONSOLIDATED EDISON CO OF N.Y., INC ........... 15,862
500 CONSOLIDATED NATURAL GAS CO ................... 27,000
200 DOMINION RESOURCES, INC ....................... 9,350
600 DTE ENERGY CO ................................. 25,725
700 DUKE ENERGY CORP .............................. 44,843
200 EASTERN ENTERPRISES CO ........................ 8,750
500 EDISON INTERNATIONAL CO ....................... 13,937
200 EL PASO ENERGY CORP ........................... 6,962
600 ENRON CORP .................................... 34,237
200 ENTERGY CORP .................................. 6,225
900 FIRSTENERGY CORP .............................. 29,306
200 FPL GROUP, INC ................................ 12,325
600 GPU, INC ...................................... 26,512
200 HAWAIIAN ELECTRIC INDUSTRIES, INC ............. 8,050
600 HOUSTON INDUSTRIES, INC ....................... 19,275
200 IDACORP, INC .................................. 7,237
400 ILLINOVA CORP ................................. 10,000
100 INDIANA ENERGY, INC ........................... 2,462
200 INTERSTATE ENERGY CORP ........................ 6,450
300 KANSAS CITY POWER & LIGHT CO .................. 8,887
400 MCN ENERGY GROUP, INC ......................... 7,625
200 NATIONAL FUEL GAS CO .......................... 9,037
300 NEVADA POWER CO ............................... 7,800
300 NEW ENGLAND ELECTRIC SYSTEMS CO ............... 14,437
200 NICOR, INC .................................... 8,450
800 NORTHERN STATES POWER CO ...................... 22,200
300 OGDEN CORP .................................... 7,518
200 OGE ENERGY CORP ............................... 5,800
400 PECO ENERGY CO ................................ 16,650
200 PEOPLES ENERGY CORP ........................... 7,975
1,200 PG&E CORP ..................................... 37,800
400 PINNACLE WEST CAPITAL CORP .................... 16,950
700 POTOMAC ELECTRIC POWER CO ..................... 18,418
800 PP&L RESOURCES, INC ........................... 22,300
200 PUBLIC SERVICE ENTERPRISE GROUP, INC .......... 8,000
300 PUGET SOUND ENERGY, INC ....................... 8,362
500 QUESTAR CORP .................................. 9,687
300 ROCHESTER GAS & ELECTRIC CORP ................. 9,375
400 SCANA CORP .................................... 12,900
1,000 SEMPRA ENERGY ................................. 25,375
200 SIERRA PACIFIC RESOURCES ...................... 7,600
1,300 SOUTHERN CO ................................... 37,781
600 TEXAS UTILITIES CO ............................ 28,012
300 UGI CORP ...................................... 7,125

</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------ -----------------
<S> <C> <C>
600 UNICOM CORP ................................... $ 23,137
300 UTILICORP UNITED, INC ......................... 11,006
300 WASHINGTON GAS LIGHT CO ....................... 8,137
400 WASHINGTON WATER POWER CO ..................... 7,700
1,200 WASTE MANAGEMENT, INC ......................... 55,950
500 WILLIAMS COS, INC ............................. 15,593
200 WPS RESOURCES CORP ............................ 7,050
-----------
1,100,408
-----------
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT--7.79%
400 o ADVANCED MICRO DEVICES, INC ................... 11,575
800 ALLEGHENY TELEDYNE, INC ....................... 16,350
200 o ALTERA CORP ................................... 12,175
500 o AMERICAN POWER CONVERSION CORP ................ 24,218
300 o ANALOG DEVICES, INC ........................... 9,412
500 o ANDREW CORP ................................... 8,250
600 o ATMEL CORP .................................... 9,187
300 o CIENA CORP .................................... 4,387
300 o COMVERSE TECHNOLOGY, INC ...................... 21,300
500 o CYPRESS SEMICONDUCTOR CORP .................... 4,156
900 EMERSON ELECTRIC CO ........................... 54,450
8,300 GENERAL ELECTRIC CO ........................... 847,118
200 o GENERAL INSTRUMENT CORP ....................... 6,787
200 HARRIS CORP ................................... 7,325
200 HUBBELL, INC (CLASS B) ........................ 7,600
4,300 INTEL CORP .................................... 509,818
200 o JABIL CIRCUIT, INC ............................ 14,925
200 LINEAR TECHNOLOGY CO .......................... 17,912
200 o MICROCHIP TECHNOLOGY, INC ..................... 7,400
300 o MICRON TECHNOLOGY, INC ........................ 15,168
400 MOLEX, INC .................................... 15,250
1,700 MOTOROLA, INC ................................. 103,806
800 o NATIONAL SEMICONDUCTOR CORP ................... 10,800
200 NATIONAL SERVICE INDUSTRIES, INC .............. 7,600
100 o PLANTRONICS, INC .............................. 8,600
300 o QUALCOMM, INC ................................. 15,543
400 RAYCHEM CORP .................................. 12,925
100 o RAYOVAC CORP .................................. 2,668
200 o SANMINA CORP .................................. 12,500
200 o SCI SYSTEMS, INC .............................. 11,550
400 o SOLECTRON CORP ................................ 37,175
100 TELEFLEX, INC ................................. 4,562
600 o TELLABS, INC .................................. 41,137
1,100 TEXAS INSTRUMENTS, INC ........................ 94,118
300 THOMAS & BETTS CORP ........................... 12,993
200 o UCAR INTERNATIONAL, INC ....................... 3,562
300 o VITESSE SEMICONDUCTOR CORP .................... 13,687
200 WHIRLPOOL CORP ................................ 11,075
100 o XILINX, INC ................................... 6,512
300 o XYLAN CORP .................................... 5,268
-----------
2,040,844
-----------
ENGINEERING AND MANAGEMENT SERVICES--0.14%
200 o CATALYTICA, INC ............................... 3,600
200 o JACOBS ENGINEERING GROUP, INC ................. 8,150
200 o METZLER GROUP, INC ............................ 9,737
300 o QUINTILES TRANSNATIONAL CORP .................. 16,012
-----------
37,499
-----------
FABRICATED METAL PRODUCTS--0.86%
200 CRANE CO ...................................... 6,037
2,800 GILLETTE CO ................................... 135,275
400 o MARK IV INDUSTRIES, INC ....................... 5,200
1,200 MASCO CORP .................................... 34,500
600 PARKER-HANNIFIN CORP .......................... 19,650
200 ROCKWELL INTERNATIONAL CORP ................... 9,712
200 SNAP-ON, INC .................................. 6,962
300 TOWER AUTOMOTIVE, INC ......................... 7,481
-----------
224,817
-----------
</TABLE>

See notes to financial statements.
B-27
<PAGE>

<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------- -----------------
<S> <C> <C>
FOOD AND KINDRED PRODUCTS--4.21%
1,300 ANHEUSER BUSCH COS, INC ..................... $ 85,312
1,200 ARCHER DANIELS MIDLAND CO ................... 20,625
900 BESTFOODS, INC .............................. 47,925
300 CAMPBELL SOUP CO ............................ 16,500
5,700 COCA COLA CO ................................ 381,187
1,000 COCA COLA ENTERPRISES, INC .................. 35,750
1,100 CONAGRA, INC ................................ 34,650
300 CORN PRODUCTS INTERNATIONAL, INC ............ 9,112
200 DEAN FOODS CO ............................... 8,162
300 DOLE FOOD, INC .............................. 9,000
300 EARTHGRAINS CO .............................. 9,281
600 GENERAL MILLS, INC .......................... 46,650
900 HEINZ (H.J.) CO ............................. 50,962
100 HERSHEY FOODS CORP .......................... 6,218
200 HORMEL FOODS CORP ........................... 6,550
500 IBP, INC .................................... 14,562
300 INTERSTATE BAKERIES CORP .................... 7,931
200 o KEEBLER FOODS CO ............................ 7,525
100 KELLOGG CO .................................. 3,412
100 LANCASTER COLONY CORP ....................... 3,212
3,300 PEPSICO, INC ................................ 135,093
400 QUAKER OATS CO .............................. 23,800
1,000 RALSTON PURINA CO ........................... 32,375
600 RJR NABISCO HOLDINGS CORP ................... 17,812
2,200 SARA LEE CORP ............................... 62,012
200 o SMITHFIELD FOODS, INC ....................... 6,775
100 TOOTSIE ROLL INDUSTRIES, INC ................ 3,912
300 UNIVERSAL FOODS CORP ........................ 8,231
100 WRIGLEY (WM) JR CO .......................... 8,956
-----------
1,103,492
-----------
FOOD STORES--0.75%
700 ALBERTSONS, INC ............................. 44,581
400 AMERICAN STORES CO .......................... 14,775
1,500 FOOD LION, INC (CLASS B) .................... 15,093
200 GREAT ATLANTIC & PACIFIC TEA CO, INC ........ 5,925
500 o KROGER CO ................................... 30,250
1,400 o SAFEWAY, INC ................................ 85,312
-----------
195,936
-----------
FURNITURE AND FIXTURES--0.14%
300 HON INDUSTRIES, INC ......................... 7,181
300 KIMBALL INTERNATIONAL, INC (CLASS B) ........ 5,700
500 MILLER (HERMAN), INC ........................ 13,437
500 U.S. INDUSTRIES, INC ........................ 9,312
-----------
35,630
-----------
FURNITURE AND HOMEFURNISHINGS STORES--0.21%
700 o BED BATH & BEYOND, INC ...................... 23,887
100 o BEST BUY, INC ............................... 6,137
500 PIER 1 IMPORTS, INC ......................... 4,843
500 TANDY CORP .................................. 20,593
-----------
55,460
-----------
GENERAL BUILDING CONTRACTORS--0.11%
300 CENTEX CORP ................................. 13,518
300 KAUFMAN & BROAD HOME CORP ................... 8,625
300 LENNAR CORP ................................. 7,575
-----------
29,718
-----------
GENERAL MERCHANDISE STORES--2.30%
200 o BJS WHOLESALE CLUB, INC ..................... 9,262
400 o COSTCO COS, INC ............................. 28,875
800 DAYTON HUDSON CORP .......................... 43,400
700 DILLARDS, INC (CLASS A) ..................... 19,862
300 o DOLLAR TREE STORES, INC ..................... 13,106
700 o FEDERATED DEPARTMENT STORES, INC ............ 30,493
100 o FRED MEYER, INC ............................. 6,025
1,900 o K MART CORP ................................. 29,093
200 o KOHLS CORP .................................. 12,287

</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------- -----------------
<S> <C> <C>
500 MAY DEPARTMENT STORES CO .................... $ 30,187
300 PENNEY (J.C.) CO, INC ....................... 14,062
600 o SAKS, INC ................................... 18,937
1,100 SEARS ROEBUCK & CO .......................... 46,750
200 o SHOPKO STORES, INC .......................... 6,650
3,600 WAL-MART STORES, INC ........................ 293,175
-----------
602,164
-----------
HEALTH SERVICES--0.47%
900 COLUMBIA/HCA HEALTHCARE CORP ................ 22,275
1,000 o HEALTH MANAGEMENT ASSOCIATES, INC
(CLASS A) NEW ............................... 21,625
1,600 o HEALTHSOUTH CORP ............................ 24,700
200 o LINCARE HOLDINGS, INC ....................... 8,112
1,100 o MEDPARTNERS, INC ............................ 5,775
100 o PEDIATRIX MEDICAL GROUP, INC ................ 5,993
200 o RENAL CARE GROUP, INC ....................... 5,762
1,100 o TENET HEALTHCARE CORP ....................... 28,875
-----------
123,117
-----------
HEAVY CONSTRUCTION, EXCEPT BUILDING--0.01%
200 FOSTER WHEELER CORP ......................... 2,637
-----------
HOLDING AND OTHER INVESTMENT OFFICES--0.71%
400 AMB PROPERTY CORP ........................... 8,800
200 ARCHSTONE COMMUNITIES TRUST ................. 4,050
200 CENTERPOINT PROPERTIES CORP ................. 6,762
100 DEVELOPERS DIVERSIFIED REALTY CORP .......... 1,775
500 DUKE REALTY INVESTMENTS, INC ................ 11,625
1,100 EQUITY OFFICE PROPERTIES TRUST .............. 26,400
100 EQUITY RESIDENTIAL PROPERTIES TRUST CO ...... 4,043
300 FEDERAL REALTY INVESTMENT TRUST ............. 7,087
200 FRANCHISE FINANCE CORP OF AMERICA ........... 4,800
200 GENERAL GROWTH PROPERTIES, INC .............. 7,575
200 KIMCO REALTY CORP ........................... 7,937
400 LIBERTY PROPERTY TRUST CO ................... 9,850
100 MACERICH CO ................................. 2,562
200 MACK-CALI REALTY CORP ....................... 6,175
300 MERISTAR HOSPITALITY CORP ................... 5,568
500 NEW PLAN EXCEL REALTY TRUST ................. 11,093
200 POST PROPERTIES, INC ........................ 7,687
400 PUBLIC STORAGE, INC ......................... 10,825
300 RECKSON ASSOCIATES REALTY CORP .............. 6,656
100 SHURGARD STORAGE CENTERS, INC ............... 2,581
200 STARWOOD FINANCIAL TRUST .................... 12,000
300 VORNADO REALTY TRUST ........................ 10,125
200 WEINGARTEN REALTY INVESTORS, INC ............ 8,925
-----------
184,901
-----------
HOTELS AND OTHER LODGING PLACES--0.12%
1,300 o CENDANT CORP ................................ 24,781
90 o CRESTLINE CAPITAL CORP ...................... 1,316
400 o EXTENDED STAY AMERICA, INC .................. 4,200
-----------
30,297
-----------
INDUSTRIAL MACHINERY AND EQUIPMENT--7.52%
1,200 o 3COM CORP ................................... 53,775
500 o ADAPTEC, INC ................................ 8,781
200 o AMERICAN STANDARD COS, INC .................. 7,200
800 o APPLE COMPUTER, INC ......................... 32,750
1,200 o APPLIED MATERIALS, INC ...................... 51,225
200 o APPLIED POWER, INC (CLASS A) ................ 7,550
700 BAKER HUGHES, INC ........................... 12,381
100 BLACK & DECKER CORP ......................... 5,606
600 CATERPILLAR, INC ............................ 27,600
500 o CIRRUS LOGIC, INC ........................... 4,906
4,000 o CISCO SYSTEMS, INC .......................... 371,250
300 o COLTEC INDUSTRIES, INC ...................... 5,850
3,900 COMPAQ COMPUTER CORP ........................ 163,556
200 CUMMINS ENGINE CO, INC ...................... 7,100
200 DEERE & CO .................................. 6,625
</TABLE>

See notes to financial statements.
B-28
<PAGE>

<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------- -----------------
<S> <C> <C>
INDUSTRIAL MACHINERY AND EQUIPMENT--(Continued)
2,700 o DELL COMPUTER CORP ................................ $ 197,606
400 DIEBOLD, INC ...................................... 14,275
200 DOVER CORP ........................................ 7,325
1,400 o EMC CORP .......................................... 119,000
2,100 HEWLETT-PACKARD CO ................................ 143,456
400 INGERSOLL-RAND CO ................................. 18,775
2,200 INTERNATIONAL BUSINESS MACHINES CORP .............. 406,450
200 o LEXMARK INTERNATIONAL GROUP (CLASS A) ............. 20,100
300 MILACRON, INC ..................................... 5,775
1,000 MINNESOTA MINING & MANUFACTURING CO 71,125
100 NACCO INDUSTRIES, INC (CLASS A) ................... 9,200
200 o NOVELLUS SYSTEMS, INC ............................. 9,900
600 PALL CORP ......................................... 15,187
100 PENTAIR, INC ...................................... 3,981
500 PITNEY BOWES, INC ................................. 33,031
300 o QUANTUM CORP ...................................... 6,375
700 o SEAGATE TECHNOLOGY, INC ........................... 21,175
500 o SILICON GRAPHICS, INC ............................. 6,437
500 o STORAGE TECHNOLOGY CORP ........................... 17,781
200 SYMBOL TECHNOLOGIES, INC .......................... 12,787
100 TECUMSEH PRODUCTS CO (CLASS A) .................... 4,662
600 TENNECO, INC ...................................... 20,437
300 TIMKEN CO ......................................... 5,662
400 o U.S. FILTER CORP .................................. 9,150
300 o UNISYS CORP ....................................... 10,331
200 o VISUAL NETWORKS, INC .............................. 7,500
200 YORK INTERNATIONAL CORP ........................... 8,162
-----------
1,971,800
-----------
INSTRUMENTS AND RELATED PRODUCTS--2.06%
200 o ARTERIAL VASCULAR ENGINEERING, INC ................ 10,500
100 BAUSCH & LOMB, INC ................................ 6,000
500 BAXTER INTERNATIONAL, INC ......................... 32,156
100 BECKMAN COULTER, INC .............................. 5,425
400 BECTON DICKINSON & CO ............................. 17,075
100 o BOSTON SCIENTIFIC CORP ............................ 2,681
200 DENTSPLY INTERNATIONAL, INC ....................... 5,150
1,000 EASTMAN KODAK CO .................................. 72,000
500 GUIDANT CORP ...................................... 55,125
500 HONEYWELL, INC .................................... 37,656
300 JOHNSON CONTROLS, INC ............................. 17,700
1,400 MEDTRONIC, INC .................................... 103,950
300 o METTLER-TOLEDO INTERNATIONAL, INC ................. 8,418
300 POLAROID CORP ..................................... 5,606
600 RAYTHEON CO (CLASS B) ............................. 31,950
100 o SOFAMOR DANEK GROUP, INC .......................... 12,175
600 o ST. JUDE MEDICAL, INC ............................. 16,612
300 TEKTRONIX, INC .................................... 9,018
100 o VISX, INC ......................................... 8,743
700 XEROX CORP ........................................ 82,600
-----------
540,540
-----------
INSURANCE AGENTS, BROKERS AND SERVICE--0.09%
400 MARSH & MCLENNAN COS, INC ......................... 23,375
-----------
INSURANCE CARRIERS--5.01%
300 AETNA, INC ........................................ 23,587
1,100 AFLAC, INC ........................................ 48,400
100 ALLMERICA FINANCIAL CORP .......................... 5,787
2,200 ALLSTATE CORP ..................................... 84,975
100 AMBAC FINANCIAL GROUP, INC ........................ 6,018
200 AMERICAN FINANCIAL GROUP, INC ..................... 8,775
500 AMERICAN GENERAL CORP ............................. 39,000
2,700 AMERICAN INTERNATIONAL GROUP, INC ................. 260,887
100 AON CORP .......................................... 5,537
10 o BERKSHIRE HATHAWAY, INC (CLASS B) ................. 24,675
300 CHUBB CORP ........................................ 19,462
700 CIGNA CORP ........................................ 54,118

</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------- -----------------
<S> <C> <C>
400 CINCINNATI FINANCIAL CORP ......................... $ 14,650
5,400 CITIGROUP, INC .................................... 267,300
100 CMAC INVESTMENT CORP .............................. 4,593
200 COMMERCE GROUP, INC ............................... 7,087
600 CONSECO, INC ...................................... 18,337
100 ENHANCE FINANCIAL SERVICES GROUP, INC ............. 3,000
400 EQUITABLE COS, INC ................................ 23,150
200 EVEREST REINSURANCE HOLDINGS, INC ................. 7,787
220 FIDELITY NATIONAL FINANCIAL, INC .................. 6,710
300 FIRST AMERICAN FINANCIAL CORP ..................... 9,637
400 FREMONT GENERAL CORP .............................. 9,900
300 HARTFORD FINANCIAL SERVICES GROUP, INC ............ 16,462
100 HARTFORD LIFE, INC (CLASS A) ...................... 5,825
500 JEFFERSON-PILOT CORP .............................. 37,500
100 LANDAMERICA FINANCIAL GROUP, INC .................. 5,581
300 LINCOLN NATIONAL CORP ............................. 24,543
300 LOEWS CORP ........................................ 29,475
100 MBIA, INC ......................................... 6,556
600 MGIC INVESTMENT CORP .............................. 23,887
500 o OXFORD HEALTH PLANS, INC .......................... 7,437
300 o PACIFICARE HEALTH SYSTEMS, INC (CLASS B) .......... 23,850
100 PMI GROUP, INC .................................... 4,937
200 PROGRESSIVE CORP .................................. 33,875
200 PROTECTIVE LIFE CORP .............................. 7,962
100 REINSURANCE GROUP OF AMERICA, INC ................. 7,000
200 RELIASTAR FINANCIAL CORP .......................... 9,225
100 SAFECO CORP ....................................... 4,293
200 ST. PAUL COS, INC ................................. 6,950
300 SUNAMERICA, INC ................................... 24,337
200 TORCHMARK CORP .................................... 7,062
200 TRAVELERS PROPERTY CASUALTY CORP .................. 6,200
700 UNITED HEALTHCARE CORP ............................ 30,143
500 UNUM CORP ......................................... 29,187
100 o WELLPOINT HEALTH NETWORKS, INC .................... 8,700
-----------
1,314,359
-----------
LOCAL AND INTERURBAN PASSENGER TRANSIT--0.03%
200 o COACH U.S.A., INC ................................. 6,937
-----------
LUMBER AND WOOD PRODUCTS--0.19%
300 o CHAMPION ENTERPRISES, INC ......................... 8,212
600 CLAYTON HOMES, INC ................................ 8,287
400 GEORGIA-PACIFIC CORP (PACKAGING GROUP) 23,425
200 WEYERHAEUSER CO ................................... 10,162
-----------
50,086
-----------
METAL MINING--0.10%
600 CYPRUS AMAX MINERALS CO ........................... 6,000
800 FREEPORT-MCMORAN COPPER & GOLD, INC
(CLASS B) ......................................... 8,350
200 NEWMONT MINING CORP ............................... 3,612
200 o STILLWATER MINING CO .............................. 8,200
-----------
26,162
-----------
MISCELLANEOUS MANUFACTURING INDUSTRIES--0.07%
300 JOSTENS, INC ...................................... 7,856
500 MATTEL, INC ....................................... 11,406
-----------
19,262
-----------
MISCELLANEOUS RETAIL--1.10%
100 o AMAZON.COM, INC ................................... 32,125
1,000 CVS CORP .......................................... 55,000
500 o OFFICE DEPOT, INC ................................. 18,468
500 OMNICARE, INC ..................................... 17,375
300 RITE AID CORP ..................................... 14,868
1,000 o STAPLES, INC ...................................... 43,687
900 o TOYS R US, INC .................................... 15,187
1,400 WALGREEN CO ....................................... 81,987
300 o ZALE CORP ......................................... 9,675
-----------
288,372
-----------
</TABLE>

See notes to financial statements.
B-29
<PAGE>

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------- -----------------
<S> <C> <C>
MOTION PICTURES--0.64%
5,500 DISNEY (WALT) CO .......................... $ 165,000
100 o HOLLYWOOD ENTERTAINMENT CORP .............. 2,725
-----------
167,725
-----------
NONDEPOSITORY INSTITUTIONS--2.33%
1,200 AMERICAN EXPRESS CO ....................... 122,700
300 o AMERICREDIT CORP .......................... 4,143
1,800 ASSOCIATES FIRST CAPITAL CORP ............. 76,275
200 CAPITAL ONE FINANCIAL CORP ................ 23,000
100 COUNTRYWIDE CREDIT INDUSTRIES, INC ........ 5,018
2,700 FEDERAL NATIONAL MORTGAGE ASSOCIATION...... 199,800
100 FINOVA GROUP, INC ......................... 5,393
1,900 FREDDIE MAC ............................... 122,431
800 HOUSEHOLD INTERNATIONAL, INC .............. 31,700
300 o LEUCADIA NATIONAL CORP .................... 9,450
200 SLM HOLDINGS CORP ......................... 9,600
-----------
609,510
-----------
NONMETALLIC MINERALS, EXCEPT FUELS--0.05%
200 MARTIN MARIETTA MATERIALS, INC ............ 12,437
-----------
OIL AND GAS EXTRACTION--0.41%
500 APACHE CORP ............................... 12,656
300 DIAMOND OFFSHORE DRILLING, INC ............ 7,106
800 ENSCO INTERNATIONAL, INC .................. 8,550
1,100 HALLIBURTON CO ............................ 32,587
200 KERR-MCGEE CORP ........................... 7,650
600 PIONEER NATURAL RESOURCES CO .............. 5,250
400 ROWAN COS, INC ............................ 4,000
300 TRANSOCEAN OFFSHORE, INC .................. 8,043
1,400 UNION PACIFIC RESOURCES GROUP, INC ........ 12,687
200 VASTAR RESOURCES, INC ..................... 8,637
-----------
107,166
-----------
PAPER AND ALLIED PRODUCTS--0.88%
300 BOISE CASCADE CORP ........................ 9,300
500 CHAMPION INTERNATIONAL CORP ............... 20,250
1,000 FORT JAMES CORP ........................... 40,000
800 INTERNATIONAL PAPER CO .................... 35,850
1,400 KIMBERLY CLARK CORP ....................... 76,300
100 ST. JOE CORP .............................. 2,343
100 TEMPLE-INLAND, INC ........................ 5,931
400 UNION CAMP CORP ........................... 27,000
400 WILLAMETTE INDUSTRIES, INC ................ 13,400
-----------
230,374
-----------
PERSONAL SERVICES--0.15%
400 BLOCK (H&R), INC .......................... 18,000
200 CINTAS CORP ............................... 14,087
200 SERVICE CORP INTERNATIONAL ................ 7,612
-----------
39,699
-----------
PETROLEUM AND COAL PRODUCTS--4.39%
2,100 AMOCO CORP ................................ 123,900
400 ASHLAND, INC .............................. 19,350
700 ATLANTIC RICHFIELD CO ..................... 45,675
1,700 CHEVRON CORP .............................. 140,993
6,200 EXXON CORP ................................ 453,375
2,000 MOBIL CORP ................................ 174,250
200 MURPHY OIL CORP ........................... 8,250
200 PENNZENERGY CO ............................ 2,962
200 o PENNZOIL-QUAKER STATE CO .................. 2,963
800 PHILLIPS PETROLEUM CO ..................... 34,100
500 SUNOCO, INC ............................... 18,031
1,500 TEXACO, INC ............................... 79,312
800 TOSCO CORP ................................ 20,700
500 ULTRAMAR DIAMOND SHAMROCK CORP ............ 12,125
200 UNOCAL CORP ............................... 5,837
300 USX-MARATHON GROUP, INC ................... 9,037
-----------
1,150,860
-----------

</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------- -----------------
<S> <C> <C>
PRIMARY METAL INDUSTRIES--0.31%
300 ALUMINUM CO OF AMERICA .................... $ 22,368
100 o CABLE DESIGN TECHNOLOGIES CO .............. 1,850
200 CARPENTER TECHNOLOGY CORP ................. 6,787
300 ENGELHARD CORP ............................ 5,850
100 o MAXXAM, INC ............................... 5,737
200 o MUELLER INDUSTRIES, INC ................... 4,062
600 NUCOR CORP ................................ 25,950
400 USX-US STEEL GROUP, INC ................... 9,200
-----------
81,804
-----------
PRINTING AND PUBLISHING--1.28%
500 BELO (A.H.) CORP SERIES A ................. 9,968
100 CENTRAL NEWSPAPERS, INC (CLASS A) ......... 7,143
600 DELUXE CORP ............................... 21,937
300 DOW JONES & CO, INC ....................... 14,437
1,000 GANNETT CO, INC ........................... 64,500
200 KNIGHT-RIDDER, INC ........................ 10,225
300 LEE ENTERPRISES, INC ...................... 9,450
100 MCGRAW HILL COS, INC ...................... 10,187
400 REYNOLDS & REYNOLDS CO (CLASS A) .......... 9,175
2,200 TIME WARNER, INC .......................... 136,537
500 TRIBUNE CO ................................ 33,000
300 o WORLD COLOR PRESS, INC .................... 9,131
-----------
335,690
-----------
RAILROAD TRANSPORTATION--0.41%
1,500 BURLINGTON NORTHERN SANTA FE CORP ......... 50,625
200 CSX CORP .................................. 8,300
400 NORFOLK SOUTHERN CORP ..................... 12,675
800 UNION PACIFIC CORP ........................ 36,050
-----------
107,650
-----------
REAL ESTATE--0.03%
400 STEWART ENTERPRISES, INC (CLASS A) ........ 8,900
-----------
RUBBER AND MISCELLANEOUS PLASTIC PRODUCTS--0.47%
100 APTARGROUP, INC ........................... 2,806
100 ARMSTRONG WORLD INDUSTRIES, INC ........... 6,031
200 FIRST BRANDS CORP ......................... 7,887
400 GOODRICH (B.F.) CO ........................ 14,350
100 GOODYEAR TIRE & RUBBER CO ................. 5,043
500 ILLINOIS TOOL WORKS, INC .................. 29,000
500 NIKE, INC (CLASS B) ....................... 20,281
300 PREMARK INTERNATIONAL, INC ................ 10,387
300 o SAFESKIN CORP ............................. 7,237
600 SOLUTIA, INC .............................. 13,425
400 TUPPERWARE CORP ........................... 6,575
-----------
123,022
-----------
SECURITY AND COMMODITY BROKERS--1.08%
200 o AFFILIATED MANAGERS GROUP, INC ............ 5,975
200 BEAR STEARNS COS, INC ..................... 7,475
100 DONALDSON, LUFKIN, & JENRETTE, INC ........ 4,100
500 EDWARDS (A.G.), INC ....................... 18,625
600 LEHMAN BROTHERS HOLDINGS, INC ............. 26,437
700 MERRILL LYNCH & CO, INC ................... 46,725
1,500 MORGAN STANLEY, DEAN WITTER, & CO ......... 106,500
100 PRICE (T. ROWE) ASSOCIATES, INC ........... 3,425
200 RAYMOND JAMES FINANCIAL CORP .............. 4,225
1,050 SCHWAB (CHARLES) CORP ..................... 58,996
-----------
282,483
-----------
STONE, CLAY, AND GLASS PRODUCTS--0.12%
200 CORNING, INC .............................. 9,000
200 o DEPARTMENT 56, INC ........................ 7,512
100 NEWELL COS, INC ........................... 4,125
300 OWENS CORNING CO .......................... 10,631
-----------
31,268
-----------
</TABLE>

See notes to financial statements.
B-30
<PAGE>

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------- -----------------
<S> <C> <C>
TEXTILE MILL PRODUCTS--0.04%
200 o MOHAWK INDUSTRIES, INC ............................ $ 8,412
100 o WESTPOINT STEVENS, INC ............................ 3,156
-----------
11,568
-----------
TOBACCO PRODUCTS--1.34%
600 FORTUNE BRANDS, INC ............................... 18,975
6,200 PHILIP MORRIS COS, INC ............................ 331,700
-----------
350,675
-----------
TRANSPORTATION BY AIR--0.49%
300 AIRBORNE FREIGHT CORP ............................. 10,818
700 o AMR CORP .......................................... 41,562
200 COMAIR HOLDINGS, INC .............................. 6,750
600 DELTA AIRLINES, INC ............................... 31,200
200 o FDX CORP .......................................... 17,800
400 SOUTHWEST AIRLINES CO ............................. 8,975
200 o U.S. AIRWAYS GROUP, INC ........................... 10,400
-----------
127,505
-----------
TRANSPORTATION EQUIPMENT--3.09%
1,000 ALLIED SIGNAL, INC ................................ 44,312
700 AUTOLIV, INC ...................................... 26,031
100 o BE AEROSPACE, INC ................................. 2,100
2,400 BOEING CO ......................................... 78,300
200 BORG-WARNER AUTOMOTIVE, INC ....................... 11,162
200 CORDANT TECHNOLOGIES, INC ......................... 7,500
700 DANA CORP ......................................... 28,612
200 DANAHER CORP ...................................... 10,862
300 EATON CORP ........................................ 21,206
200 FLEETWOOD ENTERPRISES, INC ........................ 6,950
2,600 FORD MOTOR CO ..................................... 152,587
200 GENCORP, INC ...................................... 4,987
300 GENERAL DYNAMICS CORP ............................. 17,587
1,900 GENERAL MOTORS CORP ............................... 135,968
400 o GULFSTREAM AEROSPACE CORP ......................... 21,300
600 HARLEY DAVIDSON, INC .............................. 28,425
300 LOCKHEED MARTIN CORP .............................. 25,425
400 MERITOR AUTOMOTIVE, INC ........................... 8,475
400 o NAVISTAR INTERNATIONAL CORP ....................... 11,400
200 NORTHROP GRUMMAN CORP ............................. 14,625
400 PACCAR, INC ....................................... 16,450
200 POLARIS INDUSTRIES, INC ........................... 7,837
300 SUNDSTRAND CORP ................................... 15,562
300 TEXTRON, INC ...................................... 22,781
200 TRINITY INDUSTRIES, INC ........................... 7,700
100 TRW, INC .......................................... 5,618
700 UNITED TECHNOLOGIES CORP .......................... 76,125
-----------
809,887
-----------

</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------- -----------------
<S> <C> <C>
TRANSPORTATION SERVICES--0.12%
400 GALILEO INTERNATIONAL, INC ........................ $ 17,400
400 GATX CORP ......................................... 15,150
-----------
32,550
-----------
TRUCKING AND WAREHOUSING--0.01%
100 USFREIGHTWAYS CORP ................................ 2,912
-----------
WATER TRANSPORTATION--0.04%
200 ALEXANDER & BALDWIN, INC .......................... 4,650
300 TIDEWATER, INC .................................... 6,956
-----------
11,606
-----------
WHOLESALE TRADE-DURABLE GOODS--0.13%
400 o ARROW ELECTRONICS, INC ............................ 10,675
200 o FISHER SCIENTIFIC INTERNATIONAL, INC .............. 3,987
700 IKON OFFICE SOLUTIONS, INC ........................ 5,993
200 o INGRAM MICRO, INC (CLASS A) ....................... 6,975
200 o TECH DATA CORP .................................... 8,050
-----------
35,680
-----------
WHOLESALE TRADE-NONDURABLE GOODS--0.58%
600 BERGEN BRUNSWIG CORP (CLASS A) .................... 20,925
700 CARDINAL HEALTH, INC .............................. 53,112
400 MCKESSON CORP NEW ................................. 31,625
700 SUPERVALU, INC .................................... 19,600
800 SYSCO CORP ........................................ 21,950
200 UNITED STATIONERS, INC ............................ 5,440
-----------
152,652
-----------
TOTAL COMMON STOCK
(Cost $25,033,395)................................. 26,091,315
-----------
PRINCIPAL
- ---------
SHORT TERM INVESTMENT--0.41%
U.S. GOVERNMENT AGENCY--0.41%
$107,000 FEDERAL HOME LOAN MORTGAGE CORP
4.250% 1/4/99 ..................................... 106,962
-----------
TOTAL SHORT TERM INVESTMENT
(Cost $106,962) .............................................. 106,962
-----------
TOTAL PORTFOLIO
(Cost $25,140,357) .......................................... $26,198,277
===========
- ------------
o Non-income producing

The cost of investments for federal income tax purposes is substantially the
same as the amount disclosed above.
</TABLE>

See notes to financial statements.
B-31